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Role of Public Private Partnership in Infrastructure
Development: Bangladesh Experience
MARUF AHMAD
Department of Public Administration
University of Dhaka, Dhaka
Bangladesh
August 2019
Role of Public Private Partnership in Infrastructure
Development: Bangladesh Experience
MARUF AHMAD
A dissertation submitted to the University of Dhaka, Dhaka, Bangladesh
in fulfillment of the requirements for the degree of masters of
philosophy in public administration.
Department of Public Administration
University of Dhaka, Dhaka
Bangladesh
August 2019
i
DEDICATION
This work is dedicated to my respected and beloved parents who has raised me
to be the person I am today. I think their sacrifice, dedication, love, guidance
and support that they have always given me.
ii
DECLARATION
I declare that the dissertation entitled Role of Public Private Partnership in
Infrastructure Development: Bangladesh Experience submitted to
University of Dhaka, Dhaka, Bangladesh in fulfillment of the requirements for
the degree of masters of philosophy in public administration is an original work
of mine. No part of it, in any form, has been copied from other sources without
acknowledgement or submitted to any other university or institute for any
degree or diploma.
MARUF AHMAD
Registration Number: 314
Session: 2012-13
iii
This is to certify that Maruf Ahmad has prepared this thesis entitled “Role of
Public Private Partnership in Infrastructure Development: Bangladesh
Experience” under my direct supervision. This is his original work. This thesis
or any of its parts has nowhere been submitted for any degree or publication.
Professor Naznin Islam, PhD
Department of Public Administration
University of Dhaka, Dhaka
Bangladesh.
iv
ACKNOWLEDGEMENT
All praises to Allah, the benevolent and the kind. By the grace of almighty the thesis has
come to the level of completion. I would like to take this opportunity to thank those who have
supported me throughout the course of my studies and contributed towards this thesis.
Without them this thesis would not have been possible. It has been a great honour and
privilege to have Professor Naznin Islam, PhD as my supervisor and mentor. I am extremely
indebted to her for her sincere guidance throughout my study with his in-depth knowledge
and extensive experience. Her dedication, understanding and encouragement have assisted
me to accomplish my thesis very successfully and to overcome many obstacles.
I would like to extend sincere thanks to my colleagues of Rural Development Academy
(RDA), Bogura for their support during my study.
I am extremely thankful to my younger brothers for their enormous help and support during
data collection, report writing and for making my research successful.
My heartfelt thanks to my parents Mr. Md. Moslem Uddin and Late Rasheda Begum who
have always provided me the best educational opportunities that have led me to be where I
am today.
I am grateful to all academics and administrative staff of the Department of Public
Administration, University of Dhaka for their continuous support of me.
Finally, but most importantly, the greatest support, inspiration, and understandings that I have
received and valued has come from my family: my beloved wife Sultana Rajea; my elder
brother Faruk Ahmed my dearest sister in law Nasrin Sultana and nephew Tahsina Tabassum
Tandra and Tamim Ahmed. They have enabled me to achieve the successful completion of
my thesis. Your support has been invaluable.
August 2019 Maruf Ahmad
v
CONTENTS
Page
DEDICATION i
DECLARATION ii
ACKNOWLEDGEMENT iv
CONTENTS v
LIST OF TABLE viii
LIST OF FIGURE ix
LIST OF ACRONYM xi
ABSTRACT xiii
CHAPTER 1: INTRODUCTION 1-12
1.1 Background of The Study 1
1.2 Importance/ Significance of The Study 5
1.3 Statement of the Problem and Research Questions 7
1.4 Objectives of the Study 9
1.5 Assumption of the Study 10
1.6 Limitation of the Study 11
CHAPTER 2 : METHODOLOGY 13-22
2.1 Introduction 13
2.2 Population of Study 13
2.3 Research Design 13
2.4 Research Process 14
2.5 Data Collection Techniques 17
2.6 Data Analysis 18
2.7 Expected Outcome 18
2.8 Variables of the Study 20
2.9 Chapter Summary 22
CHAPTER 3: LITERATURE REVIEW 23-54
vi
3.1 Introduction 23
3.2 Review of Literature on Different Aspect of PPP 23
3.3 Chapter Summary 54
CHAPTER 4: PUBLIC PRIVATE PARTNERSHIP:
CONCEPTUAL FRAMEWORK
55-83
4.1 Introduction 55
4.2 Definition of PPP 55
4.3 Types of PPP Contracts 57
4.4 Different Models for Public Private Partnership (PPP) in
Infrastructure
61
4.5 Layers of Public Private Partnership 64
4.6 Phases for Implementation of PPP Project 68
4.7 Formation of A PPP Project 69
4.8 Parties Involved in a PPP Project 71
4.9 Financing of PPP Projects 73
4.10 Strategic and Policy Issues in Infrastructure PPP 75
4.11 Barriers for Implementing PPP 80
4.12 Chapter Summary 83
CHAPTER 5 : PPP IN BANGLADESH: FROM POLICY TO
ACTION
84-113
5.1 Introduction 84
5.2 Background 84
5.3 Emergence of PPP 85
5.4 Previous Initiatives 92
5.5 Background of PPP Initiative and Support in Bangladesh 95
5.6 PPP Framework 98
5.7 Legal Basis for the PPP Under the Present Framework 100
5.8 Policy and Strategy for Public-Private Partnership (PPP), 2010 101
5.9 Weakness in Previous Framework 105
5.10 Applicability of PPP 105
vii
5.11 Non-Applicability of PPP 106
5.12 Sectorial Coverage of PPP 106
5.13
PPP Project Development Phases and Regulatory Framework in
Bangladesh
107
5.14 Overview of PPP Projects in Bangladesh 110
5.15 Chapter Summery 113
CHAPTER 6: RESULT AND DISCUSSIONS 114-149
6.1 Introduction 114
6.2 Selected Characteristics of the Respondents 114
6.3 Role of PPP in Infrastructure Development 120
6.4 Performance Measurement of Public Sector 129
6.5 Measuring Service Quality and Cost of Providing Services of
Infrastructure Projects under PPP
135
6.6 Environmental Consideration Infrastructure Projects under PPP 137
6.7 Barriers of PPP Projects 144
6.8 Chapter Summery 149
CHAPTER 7: CONCLUSIONS & RECOMMENDATIONS 150-157
7.1 Introduction 150
7.2 Major Findings 150
7.3 Conclusion 155
7.4 Recommendations 156
CHAPTER 8: REFERENCES 158-181
APPENDIXES 182-194
01: Infrastructure Project Implemented under PPP 182
02: QUESTIONNAIRE 183-194
viii
LIST OF TABLE
Page
Table 2.1 : Number of questionnaires administered 16
Table 4.1 : Different forms of PPP models 59
Table 4.2 : Three-layers public private partnership framework 65
Table 4.3 : Financing sources for PPP projects 74
Table 4.4 : Typical allocation of risk 79
Table 5.1 : Major steps of PPP project development in Bangladesh 109
Table 5.2 : Sector wise PPP projects implemented in Bangladesh 111
Table 6.1 : KPIs of public sector with their score for measuring
performance of public sector in infrastructure ppp projects
130
Table 6.2 : Steps of EIA being followed by before starting
infrastructure project
139
Table 6.3 : Environmental aspects adopting in infrastructure project
under PPP arrangement
143
Table 6.4 : Examples of identified barriers to PPPs implementation by
few previous research studies
144
ix
LIST OF FIGURE
Page
Figure 2.1 : Flow diagram of the research process 19
Figure 4.1 : Basics feature of PPP models 58
Figure 4.2 : Phases for implementation of PPP project 68
Figure 4.3 : Typical model of a public private partnership project 70
Figure 5.1 : PPP framework 99
Figure 6.1 : Distribution of survey respondents by age 115
Figure 6.2 : Distribution of survey respondents by education 115
Figure 6.3 : Distributions of Survey Respondents by Sector 116
Figure 6.4 : Distributions of survey respondents by infrastructure
project experiences
117
Figure 6.5 : Distributions of survey respondents by PPP project
experiences
117
Figure 6.6 : Distributions of survey respondents by involvement in
PPP infrastructure projects
118
Figure 6.7 : PPP model used in infrastructure projects of Bangladesh 118
Figure 6.8 : Practicing guidelines for PPP implementation 119
Figure 6.9 : Reasons for implementing PPP projects 120
Figure 6.10 : Why PPP in infrastructure in development? 122
Figure 6.11 : Factors contribute success of PPP 125
Figure 6.12 : Negative factor adopting PPP 128
Figure 6.13
: Ranking the performance of public sector in
infrastructure projects under PPP
134
Figure 6.14 : Service qualities of infrastructure projects under PPP 135
Figure 6.15 : Service qualities of infrastructure projects under PPP 136
Figure 6.16 : Do PPP projects end up meeting minimum requirement
for environmental approval?
137
Figure 6.17 : Environmental Impact Assessment (EIA) for
infrastructure
138
x
Figure 6.18 : Are there a specific Environmental Management Plan
(EMP)?
140
Figure 6.19 : Did the specific environmental plan follow properly? 141
Figure 6.20 : Do the PPP projects have any environmental monitoring
plan?
142
Figure 6.21 : Percentage representation of categorized barriers 146
xi
LIST OF ACRONYM
ADB : Asian Development Bank
ANOVA : Analysis of Variance
BOLT : Build-Operate-Lease-Transfer
BOT : Build Operate and Transfer
BOO : Build-Own-Operate
BOOT : Build-Own-Operate-Transfer
BOLT : Build-Operate-Lease-Transfer
BOOT : Build-Own-Operate-Transfer
BPSIG : Bangladesh Private Sector Infrastructure Guideline
BEPZA : Bangladesh Export Processing Zone Authority
CCI : Cabinet Committee on Infrastructure
CEO : Chief Executive Officer
COI : Committee on Infrastructure
CEPZ : Chittagong Export Processing Zone
CCEA : Cabinet Committee on Economic Affairs
DOE : Department of The Environment
DEA : Drug Enforcement Administration
DEPZ : Dhaka Export Processing Zone
DBFO : Design, Build, Finance and Operate
EMP : Environmental Management Plan
EIA : Environmental Impact Assessment
EPC : Engineering, Procurement and Construction
FDI : Foreign Direct Investment
FHWA : Federal Highway Administration
GOB : Government of Bangladesh
GOI : Government of India
GDP : Gross Domestic Product
IEE : Initial Environmental Examination
IPP : Independent Power Producer
ISIC : International Standard Industrial Classification
IPFF : Investment Promotion and Financing Facility
IIFC : Infrastructure Investment Facilitation Center
IDCOL : Infrastructure Development Company Limited
KPI : Key Performance Indicator.
LGA : Local Government Association
xii
LPG : Liquid Petroleum Gas
LOI : Letter of Indemnity
LDO : Lease-Develop-Operate
MoF : Ministry of Finance
MEMR : Ministry of Energy &Mineral Resources
NRB : Non-Resident Bangladeshis
NPM : New Public Management
NHS : National Health System
PPR : Public Procurement Rules
PPA : Public Procurement Act
PPP : Public Private Partnership
PFI : Private Finance Initiative
PPR : Public Procurement Rules
PSTN : Public Switched Telephone Network
PSIG : Private Sector Infrastructure Guideline
PPIAF : Public Private Infrastructure Advisory Facility
PSPGP : Private Sector Power Generation Policy
PPPAC : Public-Private Partnership Advisory Council
PICOM : Private Infrastructure Committee
PSIDP, : Private Sector Infrastructure Development
RFQ : Request for Quotation
RFEI : Request for Expressions Of Interest
RAPSS : Remote Area Power Supply Systems
SIA : Social Impact Assessment
SDG : Sustainable Development Goals
SPV : Special Purpose Vehicle
SPSS : Statistical Package for the Social Sciences
TA : Technical Assistance
UK : United Kingdom
UNESCAP : United Nation Economic and Social Commission for Asia
VfM : Value For Money
VGF : Viability Gap Funding
VGP : Viability Gap Financing
WB : World Bank
xiii
Abstract
For win-win solution of public and private sector, Public Private Partnership (PPP) is
increasing popularity in the field of international development cooperation and
sustainable development. PPPs present a number of recognized advantages for the
public sector to exploit. These include the ability to raise additional finance in an
environment of budgetary restrictions, make the best use of private sector operational
efficiencies to reduce cost and increase quality to the public and the ability to speed up
infrastructure development.
Successful PPPs are designed with careful attention to the context or the enabling
environment within which the partnerships will be implemented. The growth of PPPs
has in Bangladesh increased the availability of resources, the efficiency, and
sustainability of public services especially in the field's infrastructure. In Bangladesh a
number of barriers influencing the implementation of PPPs caused the diminishing
interests of both local and foreign private investors. Reasons for implementing PPP in
Bangladesh was ranked by the respondents included: shortage of government funding,
economic development pressure of demanding more facilities, social pressure of poor
public facilities, private incentive, and high quality service required. The purpose of
this study is to assess the performance of the public sector in infrastructure project, to
measure the costs of services and determine service quality, to explore environmental
consideration of infrastructure project under PPP; and to investigate the barriers of
implementing infrastructure projects under PPP in Bangladesh.
The study shows, role of PPP in infrastructure development is accessing private
capital and value for money, encourages innovations and incorporate lifecycle
cost/realizing efficiency gains, significant cost savings, improving risk allocation and
reduced time on projects delivery.
Sixteenth KPIs of public sector were rated by the respondents and the good
performances of public sector in infrastructure projects are land acquisition for
infrastructure; exemption of taxes and import duties; linked project; addressing socio-
economic issues and legal dispute. On the other hand the poor performances of public
xiv
sector are coordination; satisfaction level of private sector; environmental relationship
and communications; cost sharing, financial incentive for private sector and operation
and maintenance monitoring of PPP projects. To ensure customer satisfaction the
main rewards from partner with the private sector are improvements of program
performance, cost-efficiencies, better service provisions and appropriate allocation of
risks and responsibilities increases the cost of providing services. In this study it is
found that EIA has not yet evolved satisfactorily in Bangladesh. In most cases EIA
being partially followed before starting infrastructure project under PPP. The barriers
are categorized by using SLEEPT approach, that includes; social, legal, economic,
environmental, political, and technological factors. Economic barrier is the most
important barrier affecting infrastructure development under PPP followed by
technological barrier, social barrier, political barrier, legal barrier and environmental
barrier respectively as the most influential barriers to PPPs project implementation in
Bangladesh.
Therefore, recognition of the barriers and its elimination by the stakeholders in PPPs
will allow the partnerships to function effectively and ensuring successful
implementation of present and future PPPs.
Keywords: Public Private Partnership, Infrastructure, Performance, Environmental
Consideration, Barriers
1 | P a g e
CHAPTER 1
INTRODUCTION
1.1 Background of the Study
Public Private Partnership (PPP/P3) is getting attention as an attractive field of
research during the last few decades (Jiménez & Pasquero, 2005) because PPP is
being considered as an alternative institutional arrangements and modes of delivery
of public goods and services (Jamali, 2007, Wettenhall, 2003, Hodge & Greve,
2005). The primary objective of PPPs is to facilitate the delivery of high-quality
public facilities and services by the private sector over an extended period of time
at a cost that represents value for money, whilst at the same time transferring an
appropriate level of risk to the private sector (Lane & Gardiner, 2003). PPPs imply
a sort of collaboration to pursue common goals, while leveraging joint resources
and capitalizing on the respective competences and strengths of the public and
private partners (Widdus, 2001; Pongsiri, 2002; Nijkamp et al., 2002). PPPs can
also work for a range of infrastructures including transportation, water and sewer
services, solid waste disposal, municipal parking, and “social” infrastructure such
as schools, hospitals, and other public buildings. These include education, housing,
health care, transportation, social care and many other areas commonly associated
with the public sector (Grimsey & Lewis, 2002). European Commission (2004), in
its green paper on PPPs, recognized some common elements of a PPP: long
duration cooperative relationship, complex arrangement of shared funding and
participant’s role at different stages in the project and shared risk. Most supposed
PPPs in third world development do not seem to meet this criterion. Donor agencies
often promote privatization and government subsidies to private entrepreneurs in
the name of building PPPs. However, privatization and subsidies should not be
confused with PPPs (Mitchell-Weaver & Manning, 1991). Indeed, though PPP was
originally treated as a derivative of the privatization movement, there is a growing
consensus today that PPP does not simply mean the introduction of market
mechanisms or the privatization of public services. PPP is an institutionalized form
2 | P a g e
of cooperation of public and private actors, who work together towards a joint
target on the basis of their own indigenous objectives (Nijkamp et al., 2002).
According to Jamali (2004), Pongsiri (2002), Nijkamp et al., (2002) and Widdus
(2001), PPP is a sort of collaboration to pursue common goals by leveraging joint
resources and capitalizing on the respective competences and strengths of the
public and private partners. Indeed, the nature of relationship between the public
and private sectors is seen on the dimension of five types of activities namely-
parallel activities, competitive activities, complementary & collaborative activities
(Ravindran, 2002), and Contractual activities (Clifton & Duffield, 2006). PPP is the
collaboration in which the public and private sectors both bring their
complementary skills to a project, with different levels of involvement and
responsibility, for the sake of providing public services more efficiently (Efficiency
Unit, 2003b). It is a relationship that consists of shared and/or compatible
objectives and an acknowledged distribution of specific roles and responsibilities
among the participants which can be formal or informal, contractual or voluntary,
between two or more parties. The implication is that there is cooperative
investment of resources and therefore joint risk taking; sharing of authority, and
benefits for all partners (Lewis, 2002). According to Jefferies & McGeorge (2008),
a PPP consortium is defined as a temporary organization with a complex network
of stakeholders each with competing goals and objectives. Public private
partnerships (PPPs) are a policy adopted by government to buy infrastructure (and
related ancillary) services over the long term (Torres & Pina, 2001). A PPP is an
approach to delivering public services that involve the private sector, but one that
provides for a more direct control relationship between the public and private sector
than would be achieved by a simple (legally-protected) market based and arms-
length purchase (Broadbent , J. & Laughlin, R., 2003). As civil infrastructure
projects have grown in scale and scope, their cost has increased accordingly. As a
result, we have entered what has been termed the era of the infrastructure
megaproject (Altshuler & Luberoff, 2003). Around the world, governments of
different countries have tried to avoid using the term ‘privatization’ or ‘contracting
out’ in favor of speaking about ‘partnerships’. That may be a part of a general
3 | P a g e
trend within public management of needing to renew the reform buzzwords from
time to time, or the practice of advancing the same policy, but under a different and
catchier name (Hodge & Greve, 2009).
Infrastructure is vital to the development of an economy. The availability of
essential infrastructure such as water, sanitation, transport, electricity,
telecommunications and health services is not only important to the living
conditions of the people in the economy, but they are also necessary conditions for
investment and development of the economy. For this reason, the United Nations
and other multilateral institutions have recognized that the development of
infrastructure is the central issue in poverty alleviation if the Millennium
Development Goals of having extreme poverty by the year 2015 is to be achieved
(World Bank, 2009). The chronic underdevelopment of key infrastructure in
Bangladesh slows economic development and exacerbates unemployment, poverty,
and health and public service issues. It negatively impacts economic growth, taxing
the Bangladesh economy. For instance, power shortages account for an annual
estimates loss of 2% of gross domestic product (ADB) and operating deficits
within the utility sector account for another 1 % (World Bank, 2009). The country
has traditionally relied upon the public sector to develop, deliver, and maintain
infrastructure. However, inconsistent project design, poor project implementation
and management, and allegations of corruption, compounded by chronic shortage
of funding, all result in poor services. Tariff rates, and tax and non-tax fee support
are uniformly below the cost of service across all infrastructure sector. Whole the
government has sought to increase the involvement and number of private sector
participants in infrastructure, these factors signal caution for such endeavors.
Bangladesh’s PPP infrastructure development program has not delivered a
significant volume of needed projects, and poor procurement performance has held
back expanded used of this investment modality. Government entities have tended
to take an ad-hoc approach to PPP projects. As a result, bidding processes have
suffered from lack of proper preparation by the public sector entities managing
procurement, lack of ownership within implementing government bodies, frequent
4 | P a g e
changes of project management, inconsistent bidding processes, skewed risk
allocations in bid documents, and allegations that established procurement
standards are not followed. Such empirical evidence serves to undermine
confidence in government solicitation processes and results in driving value-added
infrastructure participants away from the market. A revised approach to
development, bidding, and management of PPP infrastructure is required to create a
robust and dependable approach to privately invested infrastructure development
and to regain stakeholder confidence. PPP are an evolving tool and should be
adapted to the individual nature of the project and the parties. As a result their
successful implementation requires a very detailed understanding of a myriad of
issues. Successes and failures will be depicted as valuable lessons can be learnt
from both. It is important to highlight the need for rigorous preparation and
planning to ensure that the PPP approach delivers value for money and is
sustainable, sustained political and public sector support to the strategic decisions
around the PPP, a conducive legal, regulatory and financial framework supporting
the development and implementation of PPP and lastly a true understanding by the
parties of the needs and objectives of each other.
Over the last decade, organizations have renewed their interest in measuring
organization programs and their impact. This interest is as a result of many factors
including efficient planning, the desire for accountability, the increasing interest of
multi stakeholders, concerns of funders among others. The use of performance
measurement systems is also frequently recommended for facilitating strategy
implementation and enhancing organizational performance (Davis & Albright,
2004). Neely et al., (1995) described performance measurement as the process of
quantifying action, where measurement is the process of quantification and action
correlates with performance. Performance measurement refers to the selection and
use of quantitative and qualitative measures of program/project capacities,
processes and outcomes to inform the public or designated public agency about
critical aspects of a project (Ong’olo, 2006). Neely & Bourne (2003) defined it as
the use of a multi-dimensional set of performance measures. The adoption of new
5 | P a g e
management practices over the years has also led to inquiries with regards to the
suitability of existing performance measurement systems. In Bangladesh, there is
need to evaluate the performance measurement of public and private sector in order
to develop and adopt innovative and robust solutions for organizations.
Therefore, this study is an effort to point out the performance of public and private
sector for infrastructure projects in Bangladesh, cost and service quality of PPP
projects and different critical challenges factors of PPP are identified so that
Bangladesh can successfully implement with a view to maximize the benefits from
PPP addressing the challenges.
1.2 Importance/ Significance of the Study
P3 or public-private partnership is a contract-often a long-term contract-between a
governmental body and a private entity, most often a corporation. The goal of the
partnership is to provide some public benefit, either an asset or a service. A key
element of these contracts is that the private party must take on a significant portion
of the risk because the contractually specified remuneration-how much the private
party receives for it’s participation-typically depends on performance (Rodriguez,
J. 2018).
The recent socio economic success story of Bangladesh has been widely
acknowledged locally and internationally. On the social front Bangladesh has made
significant strides in meeting several of the UN Millennium Development Goals
such as reducing income disparity ratio, attaining gender parity in education,
reduction in infant mortality etc. In addition, Bangladesh has made remarkable
progress in reducing the prevalence of underweight children, increasing enrolment
at primary schools, lowering the maternal mortality ratio and improving
immunization coverage. On the economic front it is one of the few countries to
have demonstrated consistently strong GDP growth rate averaging over 6% over
the last five years despite the general global slowdown. Over the same period per
capita income has increased from $638 in 2009 to over $1000 in 2013. The
6 | P a g e
foundation to this path of socio-economic growth, success and prosperity for
Bangladesh has been set out in the Vision 2021; the Vision that sees Bangladesh
progress to a middle income country by the year 2021. The strategy for
implementing Vision 2021 identifies the need to increase investments in
infrastructure from around 2% to 6% of GDP as one of the key requirements to
achievement of the vision. Therefore, the government has identified and prioritized
the PPP as one of the key initiatives to meet this investment priority and close the
infrastructure gap.
Bangladesh’s success has been built on the foundations of a very dynamic and
vibrant private sector. The public sector has worked together with the private sector
in different modalities in delivering infrastructure projects for nearly two decades.
As such it is keen to build on this strength and forge a lasting partnership between
the public and private sector for the accelerated development of our country.
Through the PPP program the government intends to pursue opportunities that
benefit the private sector through generating a profitable revenue stream one that
delivers to its citizens much needed social and economic public infrastructure
services and fulfill the commitment of government to meet its social obligations
and development imperatives.
Public-Private-Partnership is relatively a new concept for Bangladesh. During its
first forty years, the country has gone through rigorous nationalization followed by
vigorous privatization. With taking power by the new government that believes in
“Change” or “Din Bodol”, time has come to try the third dimension, the Public-
Private-Partnership. To reflect the aspirations of the people, the present government
has committed to raise the GDP growth rate to 8% by 2013 (Vision 2021 of
Bangladesh Awami League). To achieve this goal, investment in GDP needs to be
as high as 35%-40%. Currently this figure hovers around 24%-25% (Position Paper
of the Ministry of Finance, Bangladesh) which ironically is lower than the national
savings ratio implying nothing but idle capacity. To attain and sustain 8% growth
rate by and beyond 2013 requires additional US $28 billion from 2009-2014
(Position Paper of the Ministry of Finance, Bangladesh). Amid the global melt-
7 | P a g e
down and resulting fall in the purchasing power of the tax-payers of the country,
the government is not in a position to mobilize these gigantic additional resources
internally. It also reduces the possibility of receiving additional foreign financial
assistance. In the back-drop of all these, participation of the private sector through
PPP may reduce the investment deficit.
1.3 Statement of the Problem and Research Questions
It is a common difficulty for the government of most developing countries to build
infrastructure with their own finance (i.e. tax revenues or borrowing). This has
pushed the governments to explore new methods for the production and delivery of
basic infrastructure and public services. These include contracting-out, outright
privatization, and (PPPs). Thus PPP is considered as one of the latest innovations in
development discourse gaining popularity across the countries. An interactive
partnership between public and private sectors distributes risks and rewards
between them, allowing the construction and operation of any piece of
infrastructure cheaper than traditional public sector provision. It also allows both
the sectors to work together towards a joint target, while leveraging joint resources
and capitalizing on the respective competences and strengths.
Development planners in Bangladesh have considered these benefits and made
policy commitments and budgetary allocations to involve private sector on a
partnership basis in the financing and provision of infrastructure services. In the
budget speech for the fiscal year 2009-2010 the finance minister pronounced the
adaptation of PPP initiatives to meet the probable investment gap in infrastructure
development and maintenance, alongside the government’s investment (GOB,
2010). Very recently, Jatiya Shilpaniti-2010 (National Industrial Policy-2010) has
promised to allocate resources for PPP initiatives in the construction, development
and building of infrastructure and industries (GOB, 2010). The policy also gives
priority to establishing public private partnership in nationalized industries.
8 | P a g e
As the Bangladesh economy needs huge investment in infrastructure development.
Government alone is not capable to provide these funds. That is why government
has allowed private sector to join the effort towards infrastructure development of
the country. Government is ready to welcome both local and foreign investors. It is
true that without participation from foreign investors’ rapid infrastructure
development is not possible. Government of Bangladesh has set target of 8 percent
GDP growth rate by 2013. To attain this growth rate huge investments are needed
for infrastructure development. Government believes that private participation in
infrastructure development might be a good solution to scarcity of government fund
in doing so. With a view to encourage private participation from both home and
abroad government of Bangladesh has taken different initiatives. This is a view
from government side. But from the investors view point whether these initiatives
are sufficient or the investors, especially the foreign investors, are confident or not
about the protection is the key point for investors. Investors’ protection is critical
in attracting private participation in infrastructure project development. Investors
always prefer that economy which provides them better protection.
Despite these policy commitments of the government, PPP did not roll in the field
mainly due to the absence of an integrated policy and an institution framework on
PPP. Learning from this failure the government has recently issued a set of PPP
guidelines to select and approve projects under PPP initiatives, and steps are being
taken to establish a PPP office. Therefore, implementation of PPP initiatives,
according to the budgetary allocations, the industrial policy, and the PPP
guidelines, is at a very embryonic stage.
But there is no clear idea about the performance of public and private sector in
infrastructure projects, environmental requirements, quality and cost of services
and finally the barriers and challenges faced by the investors in an infrastructure
project in Bangladesh context.
This study is an effort to learn about the performance of public and private sector
participation in infrastructure development in Bangladesh focusing the investors’
9 | P a g e
protection, cost and service quality and also to identify the role of PPP in
improving environmental protection by ensuring compliance with environmental
requirements in Bangladesh. Finally the study is expected to find out answer of
following research questions for an infrastructure projects and assist the investors
who are planning to make their investment destination in Bangladesh and make
some comments on how to create congenial atmosphere for the foreign investors in
Bangladesh. The research questions are:
a. What is the performance of public sector in creating congenial atmosphere
for the investing in infrastructure project in Bangladesh?
b. What are the costs of providing services and does the service quality be
improved in infrastructure project implemented by PPP?
c. What is the role of PPP in improving environmental protection by ensuring
compliance with environmental requirements in Bangladesh?
d. What are the barriers of implementing successful infrastructure projects
under PPP?
1.4 Objectives of the Study
Government of Bangladesh has embraced private participation in infrastructure
development of the country. Bangladesh needs huge investment in infrastructure
development from the private sector since government alone cannot meet the
financing fund. So securing sufficient funds for financing such massive PPP
projects is a big challenge in Bangladesh. It has been learnt that for the private
participation in infrastructure development of a country, creating conducive
environment for investment is required. Investors are likely to invest in that
environment where they feel protected regarding their investment and return
thereof. This is critical for foreign investors. Financing such a large-scale project
for rapid infrastructure development requires not only private participation from
domestic sources but also foreign investment.
10 | P a g e
There is the need to identify and allocate all risk factors and barriers associated
with PPP projects. There are many public-private partnerships past histories and
project experiences to highlight factors critical to the success of future projects.
However, no comprehensive study exists to contemplate and measure the
performance of public and private sector leading to an effective PPP project
execution and in Bangladesh. In the absence of such a study, it is extremely
difficult for government agencies, industry personnel, and academics to accurately
and effectively analyze PPP projects. Little research attempts have been done to
find out the quality and cost of implementing of such projects, consideration of
environmental protection and to analyze the risk factor and barriers of
infrastructure projects leaving the private and public sectors to risk on projects that
are costly to both. Furthermore, there exists a need for a widely applicable
performance evaluation of PPP projects to analyze the role in Bangladesh context.
Toward realizing the above mention problems, the objective of the study was under
taken following objectives:
a. To assess the performance of the public sector in infrastructure project.
b. To measure the costs of services and determine service quality.
c. To explore environmental consideration of infrastructure project under PPP;
and
d. To investigate the barriers of implementing infrastructure projects under
PPP.
1.5 Assumption of the Study
An assumption is the supposition that an apparent fact or principle is true in the
light of the available evidence. The researcher had the following assumption in
mind while conducting this study:
1. The respondents included in the sample were capable of furnishing proper
responses to the questions included in the interview schedule.
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2. The researcher who acted as interviewer was well adjusted to the social
environment of the study area. Hence, the data collected by him from the
respondents were free from bias.
3. The information provided by the respondents was reliable.
4. The views and opinion furnished by the respondents’ representative views
and opinions of all the PPP stakeholders of the study area.
5. The findings of the study will have general application to other country with
similar physical, socio-economic and cultural conditions of the study area.
1.6 Limitation of the Study
In order to keep the study under manageable limit, meaningful, and considering the
time, money and other necessary resources available to the researcher, the
following limitations were recognized.
1. Private participation in infrastructure development in Bangladesh is
comparatively new and PPP framework has not yet been completely
streamlined.
2. From the government point of view it has not yet been possible to find the
primary data from a single point. Primary data has been collected from
concerned different government offices and private sector offices of
Bangladesh. Sometimes there was limited scope for collecting data. Due to
government policy all required data could not be making available.
3. Larger number of questionnaire responses would have increased the credibility
of the results from the survey analysis. More respondents should be selected
with diversity since diverse professional are needed for successful PPP
development and implementation.
4. Results would have been more representative if more case studies could have
been conducted but due to time limitation and lack of availability of data this
was not possible.
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5. Resources in terms of time, money and facilities specific PPP materials were
scarce; hence comprehensive study could not be carried out for representing
perfect general PPP scenario of Bangladesh.
6. Secondary data has been used based on availability on relevant issues.
7. The major areas of investigation were mostly confined to selected PPP projects.
8. There are many performance indicator but only 16 indicators were selected for
this study.
9. Population for the study was kept confined to the public and private officials,
engineers’ who implemented at least one PPP project during data collection.
10. For information about the study, the researcher was dependent on the data
furnished randomly from the target respondents by mail and face to face
interview. So there may be a chance to information gap.
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CHAPTER 2
METHODOLOGY
2.1 Introduction
This chapter is a blueprint of the methodology that was used by the researcher to
achieve the research objectives. In this chapter the research methodology is
presented in the following order, research design, data collection method and
finally the data analysis. The survey was conducted by sending out a questionnaire
to selected professionals with experience in infrastructure projects. The survey
helped in gathering information on the performance of public and private sector,
environmental aspects, cost and service quality of PPP projects, Respondents were
also to tell of the challenges associated with PPP projects.
2.2 Population of Study
The researcher undertook a census survey. This involved the collection of
information about each member of the given population i.e. completes enumeration
of the actors. The population for this study was all the infrastructure projects
implemented under PPPs as indicated by the PPP Secretariat Bangladesh.
2.3 Research Design
Construction Management research is commonly carried out using four standard
methods, these include: (a) Literature review; (b) Case study; (c) Interview; and (d)
Questionnaire survey (Chow, 2005).Therefore, this research study combines these
methods excepts case study to collect information and data on Public Private
Partnership (PPP).The techniques and design of the data collection process were
arranged so that the research objectives would be achieved. The research data and
analyses were triangulated from other sources to help and improve the credibility of
the findings.
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2.4 Research Process
2.4.1 Background Study
Literature on the current practice of PPP both locally and internationally were
reviewed via books, journals, magazines, newsletter, conference proceedings,
workshops, seminars and other sources. Past and current practices of PPP were
documented. The review exercise also included the development of an instrument
to conduct the interviews and questionnaires. The information collected from these
interviews and questionnaires were analyzed collectively firstly to verify the
literature study conducted and secondly achieve the proposed research objectives.
2.4.2 Project Experience
From the literature review representative cases were selected from previous
implementing infrastructure project under PPP. The selected cases included unique
features such as having particular of performances’ of stakeholders, cost and
service quality, environmental consideration and barriers also. This case consists of
PPP project experiences at Bangladesh context. The findings from the case study
enable us to verify and triangulate the findings from the other sources of data
collection used in this study.
2.4.3 Interviews with Public and Private Sector Expert
Interviews were conducted with experts from the public sector and private sector.
The experts were selected based on two main criteria, these included:
The experts possess adequate knowledge in the area of PPP; and
Experts have hands-on experience with PPP projects
Four interview questions linking up to the project objectives were derived for the
interviews with the public and private sector interviewees-
a. What is the performance of public sector creating congenial atmosphere for
the investing in infrastructure project in Bangladesh?
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b. What are the costs of providing services and does the service quality be
improved in infrastructure project implemented by PPP?
c. What is the role of PPP in improving environmental protection by ensuring
compliance with environmental requirements in Bangladesh?
d. What are the barriers of implementing successful infrastructure projects
under PPP?
2.4.4 Use of Survey
A survey is a sampling or collection of facts, figures, or opinions taken and used to
approximate or indicate what a complete collection and analysis might reveal. The
survey asks professionals to respond based on their experience with PPP projects. It
was ensured that the survey participants were from both public and private sectors.
The various respondents included engineers, contractors, suppliers, designers and
subcontractors.
2.4.4.1 Survey Questions
The survey conducted for this thesis asked questions relevant to projects that are
procured through partnerships between the public and private sectors. Respondents
were asked about their choice and comparison between traditional procurement and
PPP for infrastructure projects. They were also asked to tell performance of public
and private sector in infrastructure projects were best executed through PPP.
The survey aimed at achieving performance of public sector of PPP projects
including: environmental aspects, service quality and cost of services and also the
profound problems. Using the survey, the following objectives were achieved:
"assess the performances of public sector, measure the cost and service quality of
PPP", identify the role of PPP in improving environmental protection by ensuring
compliance with environmental requirements and “Investigate the barriers of a
successful infrastructure PPP project.”
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2.4.4.2 Survey Respondents
Analysis for the survey was based solely on the responses received from survey
recipients. The recipients were selected based on adequate knowledge and
experience with PPP projects. Most respondents had experience with either private
sector, public sector or both.
The organizations identified fell under five groups i.e. Government,
Developer/Concessionaire, Engineer, Consultants, and Contractors. Professionals
that participated on PPP projects were identified by respective organizations and
were demanded to be served questionnaire. During the interviews conducted prior
to the construction of the questionnaire it was discovered that a number of
consultants are usually engaged by the government but they hardly know about
public private partnership. These consultants strictly understand their technical
areas, they were therefore not considered for this work. Presented in Table 2.1
below is the number of questionnaire administered.
Table 2.1: Number of questionnaires administered
Groups/Type of Establishment Number Administered
Government 09
Concessionaire 02
Engineer 12
Consultants 04
Contractor 08
Total 35
The outcome of the interviews conducted was absorbed in the questionnaire
administered for the development of performance indicators for partnerships in
infrastructure. This was done in order to prevent total dependence on literature,
neutralize the researcher’s pre-conceived ideas, and most importantly allow
experienced parties to set the indicators. Their responses were then compiled and
joined with performance indicators obtained via literature review into the
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questionnaire that was administered. The designed multiple choice type
questionnaires consist of different tables and check boxes. The first section of the
questionnaires contains questions meant to collect data about the general
characteristics of respondents, this is necessary so as to check the quality or
worthiness of the person giving the information. This section served as a source of
information regarding the profession and years of experience of respondents. The
other section of the questionnaire was structured with a question relating to
objective of the study on a 5-point Likert scale for importance with 5 and 1 being
the highest of the rating and the least respectively. Respondents were asked to
indicate the importance/suitability of each indicator for measuring the performance
of partnerships in infrastructure.
2.5 Data Collection Techniques
Representative practitioners with experience in PPP were targeted. The
questionnaire aimed to achieve several key features of PPP projects including: the
attractive and negative factors, reasons for implementation, performances of public
sector, costs of providing services and does the service quality and also
environmental protection under PPP and barriers of PPP project implementation.
The questionnaire template (Appendix: II) designed reviewing literature was
adopted for covering objectives of this study. A research questionnaire could be
developed based on the literature and interview findings; there were several
advantages foreseeable to adopt survey questionnaire rather than designing a new
template. There would be no added advantage to reinvent the work that has
previously been done by other researchers. In filling out the questionnaires,
respondents are required to rate the performance against questions on a scale.
For this study, primary data was collected through the use of questionnaires that
were structured to meet the objectives of the study. The questions were both open
ended and closed ended. The closed ended questions helped capture the results that
were quantified during analysis and were ranked on a Likert scale with 5 being the
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highest score. The open ended questions were used to solicit for responses that
could not be adequately captured by structured questions. There is also a way for
which the survey can be distributed to respondents either through emailing. The
service also creates an ease for analyzing responses received. The target
respondents were Chief Operations Managers and Public Relation Managers who
were to represent the views of the private partners as well as the Technical Expert
and Communication Expert at the PPP secretariat, Bangladesh who were to
represent the views of the engaging partner, the Government of Bangladesh. For
this study, the above people were considered appropriate since given their level of
involvement, were considered knowledgeable of the entire projects/program design
and implementation process. The questionnaires were administered by the
researcher to enhance the response rate.
2.6 Data Analysis
The collected data was coded into SPSS and cleaned for analysis. Descriptive data
analysis was undertaken, where statistics such as percentages mean scores and
standard deviations were used to relay the results and interpreted accordingly.
Thematic content analysis was used to evaluate the open ended question responses.
Ranking techniques were also utilized to establish the preferences of the various
projects. The results were then presented using tables and charts where necessary
for ease of understanding. Ranking technique was used to explore the relative
importance amongst the identified performance measurement criteria.
2.7 Expected Outcome
This research is expected to provide adequate insight into the entire process of PPP
as well as look into the performance of public and private sector, cost and service
quality of PPP project, environmental aspects and barriers of a successful PPP
projects. The research will also provide responses and comments from experts and
other stake holders associated with PPP projects. This will include views from
individuals in the public and private sectors. All responses will be analyzed for
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common parameters. This will help provide solutions as to whether the PPP model
is an effective method for infrastructure projects.
From the responses suggestions will be made on how to improve the effectiveness
of PPP and suggest further areas of research
Figure 2.1: Flow diagram of the research process
Objective
Research Design
Background
Methodology Literature
Review
Expert
Opinions
Data
Acquisition
Survey Case Study
Content Analysis &
Cooperative Analysis
Data Interpretation &
Analysis
Conclusion and
Recommendations
Provide Conclusion and
Recommendations for
Future Research.
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2.8 Variables of the Study
In this study the variables studies were-
1. General characteristics of the respondents: age, education, experiences of
infrastructure projects, experiences of PPP projects, sectors belongs etc.
2. Type of Infrastructure projects
3. PPP delivery model in Bangladesh
4. Practicing Guidelines for PPP Implementation
5. Reasons for Implementing PPP projects
6. Why PPP in Infrastructure in Development?
7. Factors Contribute Success of PPP
8. Ranking of negative factors for adopting PPP
9. Performance of public sector in infrastructure projects under PPP-
Sl. No. Performance Indicators
(i) Land acquisition for infrastructure
(ii) Exemption of taxes and import duties
(iii) Linked project
(iv) Socio-economic issues
(v) Legal dispute
(vi) Fulfillment of agreement conditions (Production, Commercial
Operation Date (COD)
(vii) On time activities (Proposal to implementation)
(viii) Project Monitoring and Quality control
(ix) Procurement plan or procurement system
(x) Risk Shearing (Market and revenue risks, Operating risks,
Environmental risks, Political risks, Public acceptance risks)
(xi) Operation and maintenance
(xii) Financial incentive for private sector
(xiii) Cost sharing
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(xiv) Environmental relationship and communications
(xv) Satisfaction level of private sector
(xvi) Coordination
10. Service Quality of infrastructure PPP projects
11. Cost of providing services in infrastructure project under PPP
12. Environmental consideration infrastructure projects under PPP-
A. Environmental Approvals for PPP projects
B. Environmental Impact Assessment (EIA) for infrastructure PPP projects
C. Do these steps of EIA being followed before starting this infrastructure
project?
D. Environmental management and monitoring plan in PPP projects for
sustainable infrastructure development
E. Did the specific environmental plan follow properly?
F. Do the PPP projects have any environmental monitoring plan?
G. Environmental factors adopting the infrastructure project under PPP
arrangement-
Sl. No. Statements
(i) Limit and lower air, water, soil and all other forms of pollution,
(ii) Provide for the stewardship of ecosystems
(iii) Contribute to ecosystem and biodiversity management and
conservation
(iv) Enhance ecosystem services provided by green infrastructure
(v) Promote and use clean and environment-friendly technologies
(vi) Support the conservation and the sustainable and efficient use of
natural resources, including water, energy and materials
(vii) Mitigate greenhouse gas emissions during construction and
maintenances
(viii) Use of resilient technologies to and help protect against extreme
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weather events and other natural disasters such as earthquakes, floods,
droughts and extreme heat etc
(ix) Consider climate change risks in its design, maintenance and
operation.
13. Barriers of PPP Projects-
A. Social barriers,
B. Legal barriers,
C. Economic barriers,
D. Environmental barriers,
E. Political barriers, and
F. Technological barriers
2.9 Chapter Summary
A survey was conducted to investigate and obtain information from experts with
previous involvement and knowledge with PPP projects. The responses helped
develop a perspective on the role PPP in infrastructure projects. The statistical
representation of the survey responses helped to evaluate and analyze the various
responses received. The mean score ranking was used to rank performance factor,
and barriers of a successful PPP project.
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CHAPTER 3
LITERATURE REVIEW
3.1 Introduction
An evaluation of the Literature Review on-Public Private Partnerships (PPP) brings
forth the body of knowledge as it exists now, leading to the establishment of the
need of this study. A thorough review of current literature searched for
documentation of all aspects of Public Private Partnership. A general review of
texts and literature relating to the PPP was conducted. A select number of journal
articles relating to PPP were examined. Sources of literature include textbooks,
journal articles, Website of Public Private Authority Bangladesh, Government of
Bangladesh Reports, World Bank reports and various other reports.
3.2 Review of Literature on Different Aspect of PPP
According to the Federal Highway Administration (FHWA, 2010c) of United
States Department of Transportation, PPP is defined as: “A contractual
arrangement between public and private sector entities pursuant to which the
private sector is involved in multiple elements of public infrastructure projects”.
Private sector involvement in the delivery of public services is not a new concept;
PPPs have been used for over three decades, starting in 1970s. Initially focusing on
economic infrastructure, PPPs have evolved to include the procurement of social
infrastructure assets and associated non-core services. PPPs are used in housing,
health, corrective facilities, energy, water, and waste treatment projects. PPP policy
has also evolved globally as public sectors budgetary challenges limit potential
options. One method of tapping into alternative sources of capital is the public-
private partnership.
Standard & Poor (2005) PPP could also be defined as: “Any medium to long-term
relationship between the public and private sectors, involving the sharing of risks
and rewards of multi sector skills, expertise and finance to deliver desired policy
outcomes”.
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The National Council for Public-Private Partnership (2009) stated that some
definitions make it seem as though most of the risks are transferred to the private
sector. In reality, there is a relatively equal amount of risk transfer in a properly
modeled PPP. However, both the public and private sector shares the risks and
rewards potential in the delivery of the service and/or facility develop the necessary
skill base to procure infrastructure by way of PPP, including the capacity to create
and maintain a regulatory framework.
Nirupuma (2009) reported that private participation in US infrastructure is not a
new phenomenon. Roadways were first developed in the eighteenth century by the
private sector in the form of toll ways and turnpikes. The private sector was also
involved in the nineteenth century in the development of canals and railroads. In
the twentieth century, with the growing economy and the need for new
infrastructure, the state governments and the federal government assumed the
responsibility for providing infrastructure.
FHWA (2003) reported that in the early 1980s private participation in public sector
projects emerged, specifically in the increasingly developing southern and western
states. The United States Congress, in 1987, approved a pilot program authorizing
35% of federal funding to be channeled into government-sponsored toll road
projects in nine states. Australia and most countries in Europe had previously
effectively applied public private partnership (PPP) in most projects. There are
currently 23 states in the United States as well as Puerto Rico which have passed
legislation to allow PPP application in transportation projects.
Nguri (2009) reported that the private sector over the years has become
progressively innovative in several developed countries, which has added
substantial value to public procurement. The United Kingdom has been a recent
initiator of the current private sector involvement with infrastructure projects. This
has been the case with the introduction of Private Finance Initiative (PFI). PFIs
have been used for the development and delivery of all types of infrastructure and
services. Currently in the United Kingdom, PFIs represent 10 to 13% of all UK
ventures in public infrastructure. About 100 PFI projects are undertaken per year.
Canada has about 20% of all its new infrastructure projects designed, built or
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operated by the private sector (Deloitte, 2010). Other developing countries from
South America, Asia and Africa have also been looking in PPP procurements
(USCAP, 2007).
Bovaird (2004) stated that through PPPs the public sector establishes long-term
partnerships which are essentially working arrangements based on a mutual
commitment between a public sector organizations with any organization outside of
public sector. Relationships between public enterprises and private service
providers should be based on trust to make the system sustainable and effective in
delivering quality services to recipients. However, a PPP is not simply a joint
venture investment or joint decision making between parties, unless this is linked to
a PPP contract through networking. (Broadbent, et al., 2003) observe that Public
private partnerships (PPPs) are contractual arrangements between public sector
organizations and private sector investors for joint, symbiotic and collaborative
provision and financing of public projects and services. They arise out of the
realization that although the public sector is responsible for the delivery of
infrastructure projects, it often encounters financial, technical and institutional
limitations in availing such projects. Literature provides widespread evidence of a
growing utilization of PPPs in the delivery of public infrastructure facilities and
services to meet the numerous needs of modern economies.
Hodge (2004) stated that there is no single definition of PPPs. The term PPP has
been explained and interpreted widely in the literature to encompass any form of
arrangement between the public and private sector to deliver services to the public
which was previously provided by the public sector alone. The definitions of PPPs
differ in scope and formality of arrangements. PPPs vary from country to country in
terms of information and operation even within the developed countries .PPP's can
be defined in broad terms or in more narrow terms. In broad terms, it simply means
any form of cooperation between organizations in the public sector and the private
sector, usually meaning cooperative ventures between the state and private business
(Linder, 1999). Contracting out can be viewed as a form of PPP in this perspective
(Savas, 2000).
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Perrot & Chatelus (2000) told that the PPP approach is expected to eliminate the
decision making and managerial bureaucracy associated with the public sector. It
further positively draws from the good credit rating and general goodwill of the
public sector to consolidate market based procurement of project finances while
ensuring less resistance from the general public. The private sector’s limitations in
managing macro level public infrastructure risks as pointed out by Carnevale
(2002) can be overcome through the backing by the government in policy
formulation for implementation of PPPs.
Van Ham & Koppenjan (2001) identified the following elements of PPP's: a
business-like relationship, common decision-making procedures, risks sharing, and
long term contractual relations. A PPP can be defined as "co-operation of some
durability between public and private actors in which they jointly develop products
and services and share risks, costs and resources which are connected with these
products or services".
Linder (1999) observed that PPP's focuses on cooperation of entities: "The
hallmark of partnerships is cooperation, not competition; the disciplining
mechanism is not customer exit or thin profit margins, but a joint venture that
spreads financial risk between public and private sectors". Salamon (1995) found
that the institutional form can be a formal joint-venture company, an agreement to
cooperate or simply a new organization where both public and private participates.
Some institutional forms include cooperation between public organizations and
voluntary organizations as distinct forms of partnerships.
Savas (2000) lists a number of possible types of PPPs. This list include
infrastructure projects like BOOT, BOT, BOO and other models. These models are
highly complex and rest on extensive risk sharing between the parties in the
partnership.
Watson (2003) and Carroll & Steane (2000) see PPPs as a new tool of
organizational structure and a mechanism for the delivery of public services to
enhance efficiency and to establish different types of relationships with private
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sector organizations. However, there are views that PPPs can be seen as new forms
of governance (Teisman & Klijn, 2002).
Hodge (2004) focuses on the economic and operational aspects of PPPs in which
government establishes long-term business relationships with other providers to
share risks and returns and allows these partners involvement in financing,
designing, constructing, owning or operating public facilities or services.
English (2007) also argues PPPs are time- and cost-specific agreements between
the state and a private consortium for infrastructure-based service provision; here
the private consortium is responsible for finance, design, construction and
providing services and maintenance which is agreed upon for the duration of
contract.
Leibenstein (1966) proposed the X-efficiency hypothesis of PPPs according to
which government backed public entities are inherently inefficient such that PPPs
are necessary to reduce the sources of inefficiency in such organizations. The
involvement of the private sector allows public entities to respond to market forces
and become more competitive.
According to Sappington & Stiglitz (1987) the value for money postulation for
PPPs are desirable in infrastructure financing because they promote technical and
allocative efficiency among public projects.
Reeve, A. (2004) argues that PPPs might help derive value for money so long as
they are established in an environment rooted in long term cooperative relations
among stakeholders. This co-operation should incorporate risk sharing and proper
delineation of authority, communication and information channels as well as
responsibility and accountability.
Dailami & Klein (1997) stated that the market orientation theory advances the case
for PPPs from the market demand point of view while incorporating PPP risk
considerations. The reasoning here is that market conditions affect the incentives of
private firms to participate in any PPP in infrastructure projects. A private partner is
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bound to have a faster recovery of their investment in larger and profitable market
segments with considerable purchasing power than otherwise.
Kee & Forrer (2002) note that a competitive market is central to ensuring effective
PPPs. Theoretically, a competitive PPP contract model is superior in delivering
infrastructure because it encourages efficiency stemming from the inherent
competition among the market players.
Kopp (1997) posits that PPPs can enable the public sector to leverage more
financial resources by using the private sector as an intermediary. Accordingly, the
propensity for a government to use PPPs to finance infrastructure is a function of
the fiscal constraints such a government faces. According to this argument, PPPs
allow the public sector to consider the implementation of the otherwise
unaffordable infrastructure projects. Imperatively, countries facing fiscal problems
coupled with deficient external sources of revenue tend to be more open to foreign
private investment including in the infrastructure sector. Such countries are more
open to the use of PPPs in infrastructure. Despite of the theoretic grounding of the
use of PPPs in infrastructure financing, there is widespread documentation of the
varied experiences of countries across the globe. In Europe, most PPP models are
derivatives of the French concession model and the British Public Finance Initiative
(PPP) model.
Karisa & Dantas (2006) indicate that PPPs were instrumental in the development of
high-performance roads in France originating from the use of concessions and tolls
for financing motorway construction by public companies from the mid-1950s.
They document several major issues arising from France’s experience with
concession as a form PPP. These include the relative advantages and disadvantages
of motorway financing through cross subsidies; relative advantages and
disadvantages of toll financing of highways; efficiency of private concessions for
highways; dilemma of regulating toll rates of concessionaires; importance of
guarding against potential conflicts of interest when construction companies
participate in concessions and relative ability of public and private sector
companies to take environmental considerations into account.
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Wolmer (2004) found that besides France, key economic sectors in the UK have
benefited from the PPP in infrastructure development especially the health,
transport and the energy sectors. For instance the London underground railway
network began operating as a public private partnership in 2003. In this context, the
issues arising in PPP finance include determination of appropriate sharing of
revenues, risks and other issues relating to value for money derived from PPP
infrastructure projects.
Li et al., (2005) observed that the most important CSFs, in descending order of
importance, are: a strong private consortium, appropriate risk allocation, available
financial market, commitment/responsibility of public/private sectors, thorough and
realistic cost/benefit assessment, technical feasibility, a well-organized public
agency, and good governance. They have classified CSFs into five principle factor
groupings: effective procurement, project implement ability, government guarantee,
favorable economic conditions, and available financial market.
Koch, C. & Buser, M. (2006) have observed that the roles of the Denmark
government in managing PPP projects include: to establish a central counseling
unit; to develop a set of guidelines, tools, and standard contracts; to select a set of
pilot projects; to subsidize feasibility studies; and to investigate potential sectors for
PPP.
Grabow (2005) made a comprehensive and up-to-date review of Public Private
Partnership (PPP) projects at federal, land and municipal level. The survey's most
important findings reveal that PPP infrastructure projects are now widespread in
Germany, particularly at municipal level. Expectations of PPP regarding higher
efficiency and faster implementation go a long way to explaining the increase in the
number of PPP projects. On the other hand, the survey did not find much evidence
to suggest that PPPs are primarily seen as instruments to bridge widening gaps in
public finances. The need for private capital injections plays an important role in
one-third of projects. However, this does not mean that struggling municipalities
have a stronger tendency to pursue the PPP-project option than their more affluent
neighbor’s.
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English (2007) notes that in the Oceania region the development and
implementation of PPPs in Australia in the pre-2000 period was largely steered by
non-PPP specific infrastructure procurement policies, that resulted in the Build,
Own and Operate (BOO) and Build, Own, Operate and Transfer (BOOT) models
of PPPs. These models involved private consortia in building, operation, ownership
and transfer of infrastructure projects to the public sector with varying conditions.
She shows that in the post 2000 period, control modifications were done resulting
in two main PPP models
Jefferies et al., (2002) identified the CSFs from reflection of an Australian sports
stadium project, which include: solid consortium with a wealth of expertise,
considerable experience, high profile and a good reputation, an efficient approval
process that assist the stakeholders in a very tight timeframe, and innovation in the
financing methods of the consortium.
Sheppard et al., (1997) observed that in Africa, PPPs have been implemented on a
lower scale than in the developed countries and Sub-Saharan Africa receives only a
small share of private funds targeted for foreign PPP investment in infrastructure.
They suggest that this could be a consequence of the difficulties in accessing
project finance mostly because of the low creditworthiness of most African
countries, the limits of local financial markets, and the adverse risk profiles typical
of infrastructure projects. They further indicate that the ability of the region to
attract more private foreign currency funding for infrastructure depends in part on
the ability to reduce foreign exchange risks.
Russell & Bvuma (2001) indicate that PPPs in all sectors including infrastructure
financing were introduced in South Africa in the year 2000. According to their
model, value for money is only achieved if all appropriate risks are transferred to
the private sector. The lessons the PPP experiences offer in the country are that
there is need for regulatory framework that is effective, affordable and which offers
value for money. The PPP Unit (2003) also suggests that procedural certainty
coupled with technical assistance and political goodwill can boost infrastructure
projects. Ultimately, development of capital markets would enhance accessibility to
private debt finance for facilitating PPPs.
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Pessoa (2008) summarized that it is evident from the literature that, since the mid-
1990s, the role and scope of governments across the globe for providing public
services in an effective and efficient way have come under severe criticism at
various levels and in different forums
Kettl (2005) reviewing the literature on PPPs has revealed a growing tendency by
governments for collaborative efforts that transcend philosophic orientations.
Indeed, collaboration is at the center of New Public Management (NPM), but there
has been much pressure on governments to provide better services. While the NPM
emphasizes market values, PPPs align more with an increased focus on networks,
partnerships and collaboration. Thus, a PPP is, as Mohr (2004) argues, a network of
independent public and private actors who come together to form a cooperative and
interdependent working relationship to provide improved management skills and
financial solutions. The emergence of this network has introduced a range of issues
about how to manage the interdependence. The collaborative management
approach has thus claimed considerable attention as knowledge becomes
increasingly specialized and the demand for state and non-state collaboration
increases (Ansell & Gash, 2008) due to citizen's demands increasing. This
collaborative management is a concept that describes the process of facilitating and
operating in multi-organizational arrangement in order to remedy problems that
cannot be solved or solved easily by single organization. Thus in recent years
governments have widely recognized the necessity of some key elements of
collaboration such as informal communication for the purpose of sharing and
exchanging information, sharing initiatives, developing trustworthy relationship
between the public and the private sectors and stakeholders involvement in the
collaborative process through which they can share financial and managerial
resources to solve the challenges that neither can address individually (Bryson et
al., 2006). This is a strategic response to resource dependency and for pooling
technical, managerial and financial resources together as a means of reducing risks
and transaction costs and entering into major projects or services.
Vidigni (2002) has therefore underlined how cooperation can take place in an
organization where decisions are taken and implemented jointly. However, an
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economic aspect of the PPP model cannot be overlooked as it involves substantial
finance by both the public and the private sector in PPP projects.
Zhang, X.Q. (2005a) has identified five main Critical Success Factors (CSF)
aspects which are economic viability, appropriate risk allocation via reliable
contractual arrangements, sound financial package, reliable concessionaire
consortium with strong technical strength, and favorable investment environment.
Allen Consulting Group (2007) investigates cost performance and timeliness
outcomes of PPPs in Australia relative to budgetary provisions for the management
and construction of public infrastructure projects. The study covers largely
completed projects that were undertaken from the year 2000 to 2007. Drawing from
a population of 206 projects, 50 of which were PPP financed, the study is based on
detailed analysis of publicly available data for a sample of 21 PPP projects and 33
traditional projects. On the cost aspect they use value weighted analysis to test and
estimate the optimism bias which is the possibility of underestimating costs and
overestimating benefits from a PPP financed project.
Athias & Nunez (2007) empirically assess the effects of the bidding
competitiveness (which they call the winner’s curse) on the auctions for road
concession contracts. They use their study to address three questions. First, they
investigate the overall effects of the winner‘s curse on bidding behavior in such
auctions. Second, they examine the effects of the winner‘s curse on contract
auctions with differing levels of common-value components. Lastly they
interrogate how the winner‘s curse affects bidding behavior in such auctions after
accounting for the possibility of contract renegotiation by the bidders. They cross
sectionally investigate a dataset of 37 road concessions worldwide by comparing
similar projects across countries. Their findings show that the winner’s curse effect
is strong among less competitive toll road concession contract auctions. Bidders
would bid less aggressively in toll road concession auctions when they expect more
competition and weaker when the likelihood of contract renegotiation is higher.
This shows that bidders are more likely to employ strategic bidding in weaker
institutional frameworks, where renegotiations are easier.
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HM Treasury (2003) found early estimates of efficiencies to be gained through
PPPs showed cost-savings figures of 17 per cent from in their analysis of 29
business cases and 10 to 20 per cent based on seven empirical cases from the
National Audit Office (2000). However, other scholars refute this implied value for
money pointing towards contrary evidence. Prominent among these are Pollock et
al., (2002) who have been highly critical of PFI arrangements across a wide range
of services, including roads, hospitals and rail-transport infrastructure. Their
findings indicate that PPPs are more cost efficient than traditional procurement
methods. This efficiency ranges from 30.8 percent when measured from the time of
project inception, to 11.4 percent when measured from the time of contractual
commitment to the final outcome. The study indicates that in absolute terms, the
PPP cost advantage is economically and statistically significant. Additionally, with
respect to time over-runs, on a value-weighted basis they find that traditional
projects are likely to be completed later than PPPs relative to the budget. Between
the signing of the final contract and project completion, PPPs are found to be
completed 3.4 percent ahead of time on average, while traditional projects are
completed 23.5 percent behind time. In their conclusion they note that PPPs
provide superior performance in both the cost and time dimensions, and that the
PPP advantage increases (in absolute terms) with the size and complexity of
projects.
McKee et al., (2006) investigate the success of PPPs relative to the traditional
method of procurement of hospital infrastructure projects in Australia, USA, UK,
Canada and the European Union. They carry out the study of the two decades
leading up to December 2006 by exploring four main issues related to PPPs: cost,
quality, flexibility and complexity of the resultant infrastructural project. They use
PPP and its variants DBFO, BOO, BOOT and franchising on one hand and public
procurement on the other. They combine case study research method with cross-
sectional analysis to investigate various types of hospital infrastructure projects in
the countries identified above. They conclude that PPP seems to work well on
budget discipline and timely delivery aspects assuming that neither budgets nor
time are inflated at the contracting time. Such inflation, they observe, is less likely
in competitive PPP implementation.
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HM Treasury (2003) observed that PPP projects in UK are being delivered on time
and on budget as indicated by 88 per cent of the projects met these time and budget
constraints. Although comprehensive, the study falls short on time comparisons by
using the budgets as the benchmark instead of a more elaborate tool like PSC that
takes into consideration time value of money. This is critical given that PPPs are
implemented over lengthy periods.
Li et al., (2005) undertook a survey to assess the relative importance of eighteen
critical success factors (CSFs) among PPPs that were involved in service provision
in the UK‘s construction industry. Their Data analysis involves descriptive analysis
of the data; reliability tests using Cronbach’s alpha; one way analysis of variance
and factor analysis. The eighteen CSFs evaluated include a strong private
consortium in the PPP arrangement; appropriate risk allocation and risk sharing; a
competitive PPP procurement process; the commitment/responsibility of public-
private sectors; a thorough and realistic cost-benefit analysis; the project technical
feasibility; the transparency of the procurement process and good governance
practice. Others include a favorable legal framework; available financial market;
political support; government involvement by providing guarantees; well organized
public agency; sound economic policy; social support; technical transfer and shared
authority between the public and the private sectors. The findings reveal that
effective procurement processes; project implement ability; government guarantee;
favorable economic conditions and the available financial market are the main
factors that influence effectiveness of PPPs in financing infrastructure projects.
Low et al., (2005) investigate relative costs and benefits of PPPs in comparison
with the traditional procurement methods in Scotland. The study covers all
infrastructure PPP projects implemented up to 2005 in that country. The approach
involved sending questionnaires to the public authority and private sector
contractor responsible for each operational PPP as well as interviewing public and
private sector PPP contract managers. 84% of the projects used PSC in project
evaluation and indicated the PPP returned a saving versus the PSC. However, from
the procurement and construction standpoint, the PPP procurement process is
shown to be expensive and particularly burdensome for small projects. Here, the
mean time taken to procure the PPP projects surveyed of 28 months was deemed to
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be slower than non- PPP procurement. Besides this, the study finds that authorities
were satisfied with design quality and innovation levels inspired by PPPs in the
construction of infrastructure. In addition they promoted appropriate sharing of
risks between the public and private sectors. On the flipside, they find no evidence
on the improvement of the standard of service delivery by PPPs against the public
sector. Further, the PPP contracts were found to be less flexible than non- PPP
contracts. In general, majority of authorities considered PPPs to represent good or
excellent VFM.
Vining et al., (2005) evaluate the cost savings of PPP projects in Canada and the
USA. They collect evidence on cost aspects of PPPs from six major prison
infrastructure projects in these two countries operational at the year 2005. They use
qualitative analysis combined with descriptive statistics on the contracting costs of
the target PPP projects. They then provide a summary analysis of these PPP
financed prisons. Their results confirm that PPP contracting costs are usually high.
They conclude that these high contracting costs reflect the presence of
complexity/uncertainty and lack of contract management skills by governments.
According to them, efficiency and effectiveness of PPP projects would only be
realized if public sector managers recognize that they must design contracts that
both compensate private sector partners for risk and then ensure that they actually
bear that risk.
Pitt et al., (2006) investigate the principal factors which drive value for money
within the PPP framework in the UK. They first conduct literature review to
identify these factors before they assess them against the existing PPP projects in
UK as at the year 2006. This is done through report analysis and interviews with
PPP stakeholders. Their results reveal that the positive aspects of PPP incorporate
the advantages of competition generated by the concept as well as improved risk
management. They however point out that lack of agreed formulae by all
stakeholders by which to benchmark VFM coupled with a cynical general public
regarding the ability PPP concept to provide VFM provide the biggest challenge to
their implementation. Their study identifies the factors that affect a PPPs value for
money which they refer to as the drivers of VFM.
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Hammami et al., (2006) use panel data analysis on PPPs in infrastructure projects
in various countries for the period 1990 to 2003 to empirically investigate cross-
country and cross-industry determinants of public-private partnership (PPP)
arrangements and their prevalence thereof. Their PPP database incorporates
projects in low- and middle-income countries mostly in Latin America, the
Caribbean, East Asia, the Pacific, Eastern Europe, Central Asia, South Asia, sub-
Saharan Africa, the Middle East and North Africa. They determine the prevalence
through counting their occurrence; considering the monetary values of these PPP
occurrences and considering the extent of private participation. To analyze their
data, they carry out three different regression analyses. Where the dependent
variable is the number of PPP projects, they use Poisson or negative binomial
regressions with Zero-Inflated Poisson (ZIP) specifications where appropriate (zero
counts of PPPs in a year). At the industry level, they find that the determinants
PPPs vary across industries depending on the nature of public infrastructure, capital
intensity, and technology required. They also find that private participation in PPPs
depends on the expected service marketability and the technology required.
Pollock et al., (2002) evaluate the accuracy and challenges of appraisal of VFM
focusing on evaluation of the discounting rate that is critical in time translation of
project cash flows for comparison with PSC. They use the country‘s National
Health System (NHS) data from 1991 to 2002. This corresponds to the time when
the NHS was transferred to the PPP system of financing from the traditional public
finance. They compare cash costs and net present costs of individual PPP hospital
schemes and their risk valuations. Their data, derived from publications in the
British House of Commons Health Select Committee Public Expenditure
Memorandum of 2000 and 2001 and from full business cases for individual
hospitals that benefited from the PPP system finance. Their methodology shows the
impact of discounting on cash flows before and after risk transfer. Their results
show that the costs of raising the finance account for 39% of the total project costs
under the PPP yet publicly financed capital does not incur these costs. On the other
hand the PPP approach seems to be only better than PSC after risk transfer was
included in the net present value of PPP. This indicates the crucial significance of
incorporating risk transfer when appraising the suitability of the PPP yet the
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evaluation of risk is quite problematic. For instance the results indicate that the
private sector's risk as a proportion of the total capital costs under PPP varies
enormously between projects from 17.4% to 50.4%. This presents a difficulty in
consistency of the project appraisal process. In addition, the results show that the
value of risk transferred to the private sector is remarkably close to the amount
needed to close the gap between the public sector comparator and the PPP. This
calls to serious doubt the usefulness of PPPs in this sector.
Bovaird, T. (2004) analyses public-private partnership arrangements which are
becoming increasingly common in numerous countries around the world. They
discuss the formation of partnerships, their pros and cons and what the future may
hold for these organizations. Bovaird argues that it is still early days to make
definitive judgments about their effectiveness in various sectors.
Devapriya, K.A.K (2006) looks into nature, form and unique governance issues in
debt and equity arrangements in regulated PPP organizations. Rather than
alleviating a deficit in the institutional capacity of the public sector, the use of PPPs
actually depends for its success on the development of a variety of new types of
capacity from governments.
According to Dutz et al., (2006) this shift from traditional public sector methods
places new demands on government agencies. They need the capacity to design
projects with a package of risks and incentives that makes them attractive to the
private sector. They need to be able to assess the cost to taxpayers, often harder
than for traditional projects because of the long-term and often uncertain nature of
government commitments. They need contract management skills to oversee these
arrangements over the life of the contract. And they need advocacy and outreach
skills to build consensus on the role of PPPs and to develop a broad program across
different sectors and levels of government.
Gausch (2004) identified the practice however, the environmental conditions that
surround the project – the state of the economy, legislation that influences aspects
of the project, political stability etc.-are often subject to change over the life of a
project. When such circumstances unduly affect the private or the public sector in
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comparison to the other, the best laid plans can go awry. Successfully structured
projects therefore face turbulent times and are either re-structured, if possible, or
fail. Indeed, this has been the fate of several PPP projects over the last few decades
Gomez-Ibanez et al., (2004) indicates that sPPP projects encounter several risks
that often lead to cancellations and/or significant renegotiations. The evidence from
developing countries indicates that actual or perceived rise in tariffs,
macroeconomic fluctuations in currency or purchasing power, inadequate
regulatory and institutional environments, societal discontent against the private
sector and political reneging are some of the key reasons for the failure of PPP
projects
Jooste, Stephen F. (2009) explored the problem of institutional capacity shortfalls
that governments face when they employ Public Private Partnerships (PPPs) for
infrastructure provision. He specifically explores the variety of organizational
forms (governance bridges) that have arisen in response to this problem, using an
organization field-level analysis to identify the institutional forces that these
organizations are subjected to. It also presents a brief discussion of the institutional
change process that surrounds them. Finally the paper draws attention to a field
level aspect which is of particular salience to the study of governance bridges.
Menendez, A. (1998) summarizes the key obstacles to the expansion of PPP
initiatives in case of transport projects and highlights the structuring principles that
can help to define and develop those initiatives in a better way. The paper explores
various institutional factors like poor regulatory framework and an unstable sector
policy environment which undermine the credibility of PPP initiatives. The paper
also identifies constraints to the expansion of PPP projects as political, regulatory,
financial and methodological constraints and further explores measures to address
these constraints and create opportunities for PPP Transport projects.
Salamon (2002) observed that the last two decades have seen significant changes in
the modes of government intervention in many developed countries. Reforms in
countries like Great Britain and New Zealand have been at the forefront of this
movement, largely driven by two broad factors: perceived public sector
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inefficiencies, and the ascendance of liberal economic ideology. Changes have
broadly involved a reduction in the role of government or, more accurately, a
change in the functions it performs, and greater private sector involvement (Peters
& Pierre, 2002).
Kumaraswamy & Zhang (2001) explore that for infrastructure development this has
meant a move toward increased reliance on Public Private Partnerships (PPPs) that
involve private companies in the financing and provision of infrastructure. In most
countries these PPP arrangements have been aimed at overcoming two broad public
sector constraints: (i) a lack of public capital; and (ii) a lack of public sector
capacity –the resources and specialized expertise to develop, manage, and operate
infrastructure assets.
Harris (2003) reported that the 1990s saw proliferation of PPPs in both developed
and developing countries, totaling almost $755 billion in private investment across
nearly 2,500 private infrastructure projects globally in developing countries alone.
However, after peaking in 1999, private investment in infrastructure fell off
dramatically at the beginning of the first decade of the 21th century, only recently
returning to its former level. Guasch, Laffont, & Straub, (2002) identified a number
of reasons that have been put forward for this downturn, including highly
publicized cases of public opposition to private provision and large numbers of
contract renegotiations and cancellations.
Guasch et al.,(2002) illustrate the challenges that the need to address these
pervasive failures of infrastructure PPPs in recent years: (i) market failures
associated with private infrastructure provision (rooted in the natural monopoly
characteristics and externalities of infrastructure) (Goldberg, 1976); (ii) agency
failures relating to the limited capacity of public entities; (iii) perceived legitimacy
issues surrounding private provision of public infrastructure; and (iv) government
opportunism stemming from the fact that infrastructure is plagued by what has been
called the ‘obsolescing bargain’ once the facility is completed and in operation, the
private developer loses much of its bargaining power in subsequent negotiations
over tariffs or other matters (Woodhouse, 2005). A significant amount of work on
increasing PPP effectiveness and sustainability has focused on the constraints from
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the private perspective, stressing the limits employing private incentives to
overcome public problems.
Van Slyke (2003) observed a number of scholars however have recently
highlighted the critical role that the public sector plays in ensuring PPP success. For
instance, based on a review of the World Bank‘s experience with infrastructure
PPPs, Harris proposes that if private provision is to be sustainable and to benefit
consumers of infrastructure services, governments will have to address many of the
problems overlooked in the initial rush towards private participation (Harris,
2003).
Klijn & Teisman (2000) indicated that this assertion makes it clear that ensuring the
success of PPP projects goes beyond successfully governing the projects that have
been developed; indeed, the recent history of PPPs seems to suggest that some
projects are flawed from the outset. Of critical importance are the choices made in
deciding which projects to pursue, and developing these projects in a way that
make them attractive to private investors while still protecting the interest of users
and tax-payers in general.
Abdel Aziz et al., (2007) discusses the principles that need to be addressed in order
to ensure the successful implementation of a PPP program. These principles
include: to understand the objectives of using private finance when selecting a PPP
arrangement, to properly allocated risks to the private sector, to establish a broad
and comprehensive PPP legal framework, to assess the value for money when
selecting a delivery system, to create a PPP unit for policy development and/or
implementation, to maintain the transparency in the selection process, to
standardize the procedures and contracts, and to use performance specifications.
Akintoye et al., (2003) concluded that factors that contribute to the achievement of
best value in PPP projects are detailed risk analysis and appropriate risk allocation,
drive for faster project completion, curtailment in project cost escalation,
encouragement of innovation in project development, and maintenance cost being
adequately accounted for. They also found the factors that impede the achievement
of best value in PPP projects are: high cost of the PPP procurement process,
lengthy and complex negotiations, difficulty in specifying the quality of service
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pricing of facility management services, potential conflicts of interests among those
involved in the procurement, and the public sector client's inability to manage
consultants.
Durchslag et al., (1994) have studied a set of conditions that must be met for PPP to
be successful over the long term. These conditions were found out to be to ensure
that the highest political authorities give their complete commitment and support to
pushing the program, as fast as possible; maximize transparency and minimize the
scope for discretionary decision making to ensure the integrity of the process;
minimize government provision of guarantees, incentives and credit; empower a
small committee of carefully selected individuals to oversee the privatization
process across all sectors; develop and enact the legal and regulatory framework for
the sector before conducting any actual securitization or privatization; ensure the
integrity ofthe restructuring process; and maximize competition through the use of
public tenders.
Huxman & Hubbert (2009) have studied what makes partnerships a success or not.
Huxman & Hubbert pick out five types of success. They are: (1) Achieving
outcomes, (2) getting the process to work, (3) reaching emergent milestones, (4)
gaining recognition from others, and (5) acknowledging personal pride in
championing a partnership. Out of these types of success, the most well-known
ones from other parts of the literature are (1) and (2).
Kumaraswamy & Zhang (2001) have discussed the issues that governments need to
deal with for the BOT scheme to work smoothly which include: establish adequate
legal and regulatory framework, provide stable political environment, develop
domestic capital market, ensure a fair and competitive bidding, provide adequate
government assistance and guarantees, conduct project feasibility study, select the
most suitable concessionaire, continuously assess project progress and
performance.
Merna & Dubey (1998) discuss the concept of financial engineering and how it
may be used to structure financial packages for infrastructure projects. They outline
the instruments, markets, sources and risks associated with the procurement of
privately financed infrastructure projects and demonstrate how financial
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engineering techniques can be used to tailor lending packages to suit projected cash
flow.
McConnell, A. (2010) observes that despite some literature available on policy
success (including much literature on failure), the phenomenon of policy success is
rarely tackled directly and systematically. He acknowledges, though, that policy
has to date been about process; about programmes and about the political
dimension. As a consequence, he suggests that these three main dimensions provide
a foundation for interpreting success. McConnell notes that governments do
process (defining issues as problems, examining options, consulting, and so on),
they do programmes (using a wide variety and combinations of policy instruments),
and they do politics (engaging in activities that can influence electoral prospects,
maintaining capacity to govern and steering policy direction). Clearly, success can
reside in each of these three spheres. These insights are crucial in the discussion of
PPP success.
Skelcher, C. (2010) writes about PPP success from another angle–that of the
governance of PPP. Acknowledging the existence of a wide range of PPP forms, he
writes about four different types of governance: legal governance, regulatory
governance, democratic governance and corporate governance. He observes that
there has been some focus on legal governance, democratic governance and also
regulatory governance. However, he states that corporate governance aspect has
been the least examined aspect of PPPs, with few studies having focused on the
relationship between the board and the director and the governance structures
surrounding them.
Adams (2006) examine the PPP system in China to identify the constraints facing
its implementation and progress in the context of several models of bureaucracy in
the country. Their study uses qualitative analysis based on Chinese PPP secondary
data available for a twenty year period commencing when the PPP arrangements
came to practice in China up to 2006. This involves intensive study of the
individual projects by studying reports, news items, manager responses and the
details of project implementation, ex ante budget and ex post cost and performance
records. In the Chinese PPP context, they indicate that the main PPP models are
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concessions, divestiture and outsourcing. The qualitative desk-top research reveals
the following as the major stumbling blocks to the effectiveness of PPPs in China.
First is the allocation of risk between the public and private partners. The other
challenges are identified as corruption, continued weak supervision, poor
accessibility to investment capital and authorities and the central government which
exacerbates this fluidity and policy contradictions.
Qiao et al., (2001) have identified eight independent CSFs which include:
appropriate project identification, table political and economic situation, attractive
financial package, acceptable toll/tariff levels, and reasonable risk allocation,
selection of suitable subcontractors, management control, and technology transfer.
Asian Development Bank (ADB) Report (2009) discusses challenges faced by
PPP‘s in India and the initiatives taken by the Asian Development Bank to provide
technical assistance in development of PPP‘s at the Central and State level. It also
discusses the difficulty in developing self-sustaining, bankable PPP projects in
India at state level.
The Department of Economic Affairs, Government of India and Asian
Development Bank Report (2006) discuss status of PPP‘s in India and their
relevance in economic development. It also discusses key government initiatives
and private sector perspective on PPP‘s in India. It also throws light on the role of
multilateral agencies in PPP. It further discusses the role of government in capacity
building at the state and central level. In the end, the report draws lessons for India
from the experiences of developed and developing countries like Mexico, Chile,
California, Virginia, etc.
DEA, MoF, GoIReport (2007) discusses the Infrastructure challenges and Role of
Public Private Partnerships in India. It focuses on the importance of organizing the
government capacity for PPP’s. The report further describes the innovative
financing models for infrastructure and the growing pool of international investors
looking to invest in PPP’s. The report also discusses the typical risks in various
infrastructure sectors and arrangements for sharing them. A study done by the
Committee on Infrastructure Financing, constituted by the Government of India,
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has indicated that India must invest close to USD 400 Billion in infrastructure
development and maintenance over the period ranging from 2006-2011
(Committee on Infrastructure Financing, 2007). Given the large sum of money
involved as well as the vast amount of infrastructure that is to be built, it is clear
that the participation of the private sector will be necessary, both in terms of
financing and in terms of implementation of infrastructure. Public Private
Partnerships (PPP) are therefore considered to be inevitable in the prevailing Indian
Infrastructure context and are estimated to constitute 40% of new infrastructure
development over the next four years (Department of Economic Affairs, GoI,
2007). The private sector too is increasingly becoming interested in participating in
infrastructure projects. In the roads sector for instance, PPP projects attract more
bidders today than they did 5 years ago.
Government of India Report (2010) discusses various policy initiatives taken by
Central government to promote private participation in infrastructure like formation
of Committee on Infrastructure (COI), Cabinet committee on Infrastructure (CCI),
Public Private Partnership Appraisal Committee (PPPAC), etc. It also discusses the
role of these committees in monitoring and developing private participation in
infrastructure. It also lists various PPP projects approved by these committees at
central and state levels. This report further discusses the status of various PPP
projects at the central as well as state levels which are at different stages of
development, i.e. completed, under implementation or in the pipeline.
Price Water House Coopers Report (2007) prepared for World Bank states
evidence based description of present financing sources for PPP in Infrastructure. It
analyses the debt and equity financing of PPP in India. It further identifies changes
required to reduce and ease the identified constraints. The report supports the above
study through a survey findings and data analysis through pie charts and bar graphs.
Thomas et al., (2003) have identified eight types of risks: traffic revenue risk, delay
in land acquisition, demand risk, delay in financial closure, completion risk, cost
overrun risk, debt servicing risk, and direct political risk. They further discuss risk
perception of project stakeholders and factors influencing risk acceptance.
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World Bank Report (2006) discusses a number of wide ranging issues on the
subject. This report explores the need for developing and strengthening capacities
for PPP‘s in India. It lays emphasis on the role of public sector/government for a
successful PPP program in the country. It states that government can boost
performance of PPP programs through various policy and regulatory frameworks
and developing human resource capacities through proper training and information
dissemination. It also suggests various measures for PPP’s in India based on
experience of other countries like Philippines, South Korea and Chile. Besides, its
bibliography itself is a good guide for further research on the subject.
Another World Bank Report (2006) discusses the various constraints to
infrastructure financing in detail like financial constraints, fiscal barriers,
inadequate administrative capacity and poor infrastructure regulations. This report
also discusses investment need for infrastructure and participation by financial
institutions in infrastructure projects. It further explores sector specific constraints
related to poor regulation and related risk and uncertainties. In the end, the report
suggests measures to address infrastructure financing constraints and related
regulatory issues.
Roehrich et al., (2014 ) stated that Governments around the world, but especially in
Europe, have increasingly used private sector involvement in developing, financing
and providing public health infrastructure and service delivery through public
private partnerships (PPPs).
Jiménez & Pasquero (2005) explore that Public private partnership (PPP/P3) is
getting attention as an attractive field of research during the last few decades
because PPP is being considered as an alternative institutional arrangements and
modes of delivery of public goods and services (Jamali, 2007, Wettenhall, 2003;
Hodge & Greve,2005).
Lane & Gardiner, (2003) observed that the primary objective of PPPs is to facilitate
the delivery of high-quality public facilities and services by the private sector over
an extended period of time at a cost that represents value for money, whilst at the
same time transferring an appropriate level of risk to the private sector.
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Widdus (2001); Pongsiri, (2002); and Nijkamp et al., (2002) indicated that PPPs
imply a sort of collaboration to pursue common goals, while leveraging joint
resources and capitalizing on the respective competences and strengths of the
public and private partners.
Grimsey & Lewis (2002) found that PPPs can also work for a range of
infrastructures including transportation, water and sewer services, solid waste
disposal, municipal parking, and “social” infrastructure such as schools, hospitals,
and other public buildings. These include education, housing, health care,
transportation, social care and many other areas commonly associated with the
public sector.
European Commission (2004) discussed in its green paper on PPPs, recognized
some common elements of a PPP: long duration cooperative relationship, complex
arrangement of shared funding and participant’s role at different stages in the
project and shared risk.
According to Jamali (2004), Pong Siri (2002), Nijkamp et al., (2002) and Widdus
(2001), PPP is a sort of collaboration to pursue common goals by leveraging joint
resources and capitalizing on the respective competences and strengths of the
public and private partners. Indeed, the nature of relationship between the public
and private sectors is seen on the dimension of five types of activities namely-
parallel activities, competitive activities, complementary & collaborative activities
(Ravindran, 2002), and Contractual activities (Clifton & Duffield, 2006).
Efficiency Unit, (2003b) found that PPP is the collaboration in which the public
and private sectors both bring their complementary skills to a project, with different
levels of involvement and responsibility, for the sake of providing public services
more efficiently.
Lewis (2002) stated that PPP is a relationship that consists of shared and/or
compatible objectives and an acknowledged distribution of specific roles and
responsibilities among the participants which can be formal or informal, contractual
or voluntary, between two or more parties. The implication is that there is
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cooperative investment of resources and therefore joint risk taking; sharing of
authority, and benefits for all partners.
According to Jefferies & McGeorge (2008), a PPP consortium is defined as a
temporary organization with a complex network of stakeholders each with
competing goals and objectives. Torres & Pina (2001) told that Public private
partnerships (PPPs) are a policy adopted by government to buy infrastructure (and
related ancillary) services over the long term.
Broadbent, J. & Laughlin, R.(2003) said that PPP is an approach to delivering
public services that involve the private sector, but one that provides for a more
direct control relationship between the public and private sector than would be
achieved by a simple (legally-protected) market based and arms-length purchase.
As civil infrastructure projects have grown in scale and scope, their cost has
increased accordingly. As a result, we have entered what has been termed the era of
the infrastructure megaproject (Altshuler & Luberoff, 2003).
According to Grimsey and Lewis (2004), PPPs might be defined as a bundle of
rules that allow a public entity to participate or support infrastructure service
supplying, which were previously provided by the public sector. This new
contractual arrangement has many forms and it may set one or many tasks for the
private partner that can include management, financing, developing or repairing a
building or a service.
HM Treasury (2006) stated that since their emergence, PPPs are being used in
many infrastructure sectors, in parts of the European continent, the USA and Latin
America. The larger concentration of these public contracts occurs in the health
sector, sanitation, prisons, roads and schools (European PP Report, 2009). It can be
highlighted that the UK, as a precursor country in these contractual relationships,
has signed around 70 projects from 1998 to 2006. In the world scenario, in 2005,
according to Price (Waterhouse Coopers 2005), contracts signed using the PPP
model were around 55 billion dollars. Iossa & Martimort (2009) found that the
PPPs had lower results in provision of services related to water supply in France. In
48 | P a g e
addition, sectors that have rapid technological change do not seem to be appropriate
in these partnership contexts.
Guasch & Straub (2009) observed the existing evidence and also suggests that
renegotiations have played a significant role in PPP arrangements worldwide. In
Latin America, there are numerous cases where governments have failed to honor
contractual terms and the projects were abandoned. This evidence questions the
results provided by PPP contracts, but they also stress the need of theoretical model
development for the understanding of incentives in this contractual arrangement.
According to Bettignies & Ross (2009), the entry into a partnership with the private
sector contributes better than the traditional contractual arrangement because the
partnership is a better incentive towards the adoption of innovative ideas that could
serve as a tool to assist the government to achieve lower costs in the provision of
public services. The key point in public-private partnership performance is the
possibility provided to governments to expand the supply of public goods and
services using private resources and somehow increasing their budget.
Li and Akintoye (2008) highlighted the advantages these are: first is the
competition among private agents interested in entering a partnership with the
State. These authors also reiterate the fact that the private sector's innovative
capacity is something that should be considered. Thus, they justify this hypothesis
value, taking into account that in the private market there is intense competition, so
innovation is a competitive advantage for companies. Conversely, risk sharing must
be considered when a PPP concession is made.
Concerning the investments, (Hart et al., 1997) developed a theoretical model that
seeks to identify which conditions the government should be responsible for the
service provision, or alternatively, when this benefit can be transferred to the
private sector. The authors suggest that the provision of public services should
continue being the government's competence when possible reductions in
undertaking costs have a large effect on the quality of the service. Conversely,
privatization is better when cost reductions may be controlled by a competitive
49 | P a g e
contract, or when the innovation process concerning design quality characteristics
is important.
Within this incomplete contract context, (Hart, 2003) develops a PPP model where
the public entity is an active owner after the project is finished and which possesses
two options: hire a third party to build and operate the project (bundling regime) or
contract two different companies (unbundling regime). The author assesses PPP as
a good option when service quality can be well defined in the initial contract, while
the building quality cannot.
Under the government spending perspective, Maskin & Tirole (2008) report that
bundling not always induces the building and operation firms responsible to
internalize operational cost reduction. This procedure could lead to an efficiency
loss because the best builder is not necessarily the best operator. Moreover,
bundling might encourage choices that lead to future cost reduction over the service
quality because of collusion between the operator and the regulator, who together
can manipulate the project's accounting in their favor.
Walker & Smith (1995) suggested three main reasons for using the PPP approach:
firstly, In general, the private sector possesses better mobility than the public
sector. For example, the privates sector is not only able to save the costs of project
in planning, design, construction and operation, but also avoid the bureaucracy and
to relieve the administrative burden. Secondly, the private sector can provide better
service to the public sector and establish a good partnership so that a balanced risk-
return structure can be maintained and thirdly the government lacks the ability of
raising massive funds for the large-scale infrastructure projects, but private
participation can mitigate the government’s financial burden.
Walker et al., (1995) sported that PPP is a win-win solution and a number of
benefits to the general public and government are recognized:
Relief of financial burden;
Relief of administrative burden;
Reduction in size of inefficient bureaucracy;
Better services to the public;
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Encouragement of growth; and
Government can better focus and fund social issues such as health, education
pensions and arts.
According to Ghobadian et al., (2004) anticipated that there will be more PPP
projects due to two main reasons. Firstly; the private sector will get to know the
needs of the public sector client over time. Secondly, the private sector has more to
give than the public sector in terms of skills, technology and knowledge therefore
providing better quality facilitates.
Askar & Gab-Allah (2002) summarized eight advantages of PPP are: i) The use of
private sector financing to provide new sources of capital, thus reducing public
borrowing and improving the host government’s credit rating; ii)The ability to
accelerate the development of projects that would otherwise have to wait for scarce
sovereign resources; iii) The use of private-sector capital, initiative, and know-how
to reduce project construction costs and schedules and to improve operating
efficiency; iv) The allocation of project risk and burden to the private sector that
would otherwise have to be undertaken by the public sector; v) The involvement of
private sponsors and experienced commercial lenders, providing an in-depth review
and additional assurance of project feasibility; vi) Technology transfer, training of
local personal, and development of national capital markets; vii) In contrast to full
privatization, the government’s retention of strategic control over the project, which
is transferred back at the end of the contractual period; and the opportunity to
establish a private benchmark to measure the efficiency of similar public sector
projects and thereby offer opportunities for the enhancement of public management
of infrastructure facilities; Viii) Risk transfer is one of the main reasons for
adopting the PPP approach. The private sector is in general more efficient in asset
procurement and service delivery and as a result it is to the government’s advantage
to share the associated risk with the private sector. Corbett & Smith (2006) stated
that cost certainty is more easily achieved in PPP projects as financial terms are
identified and included within the contract. Since the private consortium will
normally be responsible for financing, designing, constructing and operating the
facility over an extended period, any cost saving can naturally result in a better
chance of securing profit. Hence, they are keen to control their spending tightly
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Chan et al., (2006) explore that Innovation is another important advantage that the
private sector can bring to public services. Generally speaking, the public sector
may not be as innovative as the private sector. The private sector on the other hand
is continuously searching for new product and services to increase their competitive
edge and to save costs. The private sector is made responsible for ensuring that the
asset and service delivered meet pre-agreed quality benchmarks/standards
throughout the life of the contract. Sometimes, the private consortium would only
receive payment upon meeting certain requirements of the project; or it is
motivated by the incentive payments to reward the high quality of service to be
provided. In a PPP project the consortium is also responsible for the long-term
maintenance of the facility/service. The concession period may range from a few
years to decades. Therefore the consortium is keen to design and construct the
service/ facility to ensure better maintainability (Chan et al., 2006), at least within
the concession period if not beyond.
Li (2003) stated that Public sector projects delivered by the PPP model can often be
completed on time and even with time savings because the consortium would start
receiving revenue once the facilities/services are up and running. Therefore, the
project team is keen to complete design and construct as quickly as possible. Once
it starts to accrue revenue it can begin to pay off the initial costs and build up
profits, whereas in a traditionally procured project there are no extra financial
incentives for public servants to deliver projects faster. As a result, projects can
best be proceeded along as scheduled.
Li et al., (2005b) observed to the government, PPP frees up fiscal funds for other
areas of public service, and improves cash flow management as high upfront capital
expenditure is replaced by periodic service payments and provides cost certainty in
place of uncertain calls for asset maintenance and replacement. Public sector
projects delivered via the private sector normally involve private sector funding.
Consequently, the public funding required for public services can be reduced and
redirected to support sectors of higher priority ,e.g. education, healthcare,
community service, etc.
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European Commission Directorate (2003), PPP provides access to public sector
markets to the private sector participants. If priced accurately and costs managed
effectively, the projects can provide reasonable profits and investment returns on a
long-term basis. Also, these projects tend to be large and therefore expertise form
many areas are required. Hence co-operation among different collaborating parties
is encouraged.
Berg et al., (2002) also summarized some disadvantages of PPP project these are i)
Lengthy bidding process-from initial phase of public sector assessment to signing
of contract takes up to two years. The process of inviting, preparing, assessing and
refining bids and negotiating contracts is complex and procedural. ii) High bidding
costs-the detailed and lengthy nature of the bidding process implies increased
transaction costs; iii) Small number of bidders IV) Cost overruns-considerable
scope for cost inflation through the bidding process and v) Excessive risks –not
clear to what extent the government can shift risk.
Chan et al., (2006) also observed time certainty is found to be more easily achieved
in PPP projects. The consortium is often paid according to milestones of the project
schedule and any delay might be subject to liquidated damages. Therefore the
consortium is often motivated to reach these milestones on time. This is a common
behavior observed in the private sector but it may not be the case in the public
sector. PPP projects may fall apart due to failure on the part of the private sector
participants. In contracting out the PPP projects, the government should ensure that
the parties in the private sector consortium are sufficiently competent and
financially capable of taking up the projects. Due to a lack of relevant skills and
experience of project partners, PPP project are more complex to procure and
implement (e.g. London underground). The bidding process is also regarded as
lengthy and complicated. For example, bidders are required to prepare tender
proposals attached with a bundle of additional materials. Such a process may take
three to four months. Besides, another several lengthy negotiation will be required
for the formation of the contract. Clearly, setting up a complicated agreement
framework for successful PPP implementation can slow down the bidding process.
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Corbett & Smith (2006) indicated one common problem encountered in PPP
projects is the high bidding costs, which is owing to increasing project complexity
and protracted procurement process. The private sector incurs high bidding costs
partly due to the consideration of the clients and their financier’s objectives.
Lengthy negotiations and especially the cost of professional services may increase
the bidding costs further
Li, 2003; Li et al., (2005b) found another common complaint by the public is the
high tariff charged for the service provided. More often, the private sector would
face political uphill in raising tariff to a level sufficient to cover its costs and earn
reasonable profits and returns on investment. The participation of the private sector
to provide public service will undoubtedly bring innovations and efficiencies in the
operation, but may produce an ear of downsizing in the public sector. To a certain
extent, there would be fewer employment opportunities if no regulatory measures
were implemented.
Grimsey and Lewis (2004) highlighted the reason for failure is the stakeholder’s
opposition and general public opposition. Heather the proposed project is
consonant with the interest of the public is important as public opposition can
adversely affect the funding for the project from the public sector. PPP in public
projects typically incur political and social issues like land resumption, town
planning, employment, heritage and environmental protection. These could result in
public opposition, over-blown costs and delays to the projects. The introduction of
PPP expert’s unprecedented pressure on the legal framework as it plays an
important role in economic development, regeneration and mechanism for
developing infrastructure. Still, some countries do not have a well-established legal
framework for PPP projects and the current legal framework is only supposed to
deal with the traditional command and control model. Although PPP involves a
great deal of legal structuring and documentation to deal with potential disputes
amongst PPP parties, a “water-tight” legal framework is still lacking (e.g.
protection of public interests versus legitimate rights of private sector).Without a
well-established legal framework, disputes are inevitable. Private sector investors
bear financial risks in funding of the investment. Seeking financially strong
partners in a PPP project is regarded as difficult. In most PPP arrangements, the
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debt is limited-recourse or non-recourse, where financiers need to bear risks. In
fact, most stakeholders are not willing to accept excessive risks. The lack of mature
financial engineering techniques on the part of the host countries can also be
another problem. Unattractive financial market (e.g. politically unstable or high
interest rate) is often a negative factor to PPP success. Therefore, financial market
is important for the private parties to drive PPP projects.
3.3 Chapter Summary
In this chapter, a comprehensive review of current literature searched for
documentation of all aspects of public private partnership agreements is conducted.
A review of literature concerning the infrastructure of different country of world
and also Bangladesh and its history was also studied. Government documents from
the Bangladesh and abroad, including actual legislation and guiding principles for
implementing PPP projects, served as a large source of information. A select
number of journal articles relating to PPP were also examined. Sources of literature
include textbooks, journal articles, conference reports, seminar presentations,
reports to the US congress, and reports from other resources.
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CHAPTER 4
PUBLIC PRIVATE PARTNERSHIP: CONCEPTUAL FRAMEWORK
4.1 Introduction
Meeting the challenges of the growing demand for new and better infrastructure
services with limited resources have found partnerships with private sector as an
attractive alternative to increase and improve infrastructure services in a short time.
The partnership is built through a legally binding contract on the expertise of each
partner that meets clearly defined public needs through the appropriate allocation of
resources, risks, responsibilities and rewards. It is important to emphasize here that
PPP is not a solution option to an infrastructure service problem but a viable project
implementation mechanism for a preferred solution option.
4.2 Definition of PPP
According to Department of Economic Affairs, Ministry of Finance, Government
of India (GOI, 2007) and Asian Development Bank, “PPP means an arrangement
between a government or statutory entity or government owned entity on one side
and a private sector entity on the other, for the provision of public assets and/ or
related services for public benefit, through investments being made by and/or
management undertaken by the private sector entity for a specified time period,
where there is a substantial risk sharing with the private sector and the private
sector receives performance linked payments that conform (or are benchmarked) to
specified, pre-determined and measurable performance standards.” Any
Engineering Procurement Construction (EPC) contract asset that is not retained by
the private sector after 3 years from completion of construction or any arrangement
for supply of goods or services for a period of up to three years or any arrangement
or contract that only provides for a hire or rent or lease of an asset without any
performance obligations and other essential features of a PPP does not come under
the definition of PPP.
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According to GOI, 2007 "PPP Project" means a project based on a contract or
concession agreement, between a government or statutory entity on the one side
and a private sector company on the other side, for delivering an infrastructure
service on payment of user charges. Here, Private Sector Company means a
company in which 51% or more of the subscribed and paid-up equity is owned and
controlled by a private entity.
Though, there is no single definition of PPPs, the primary aim of this cooperation
broadly refers to long-term, contractual partnerships between the public and the
private sector agencies, specifically targeted toward financing, designing,
implementing, and operating infrastructure facilities and services that were
traditionally provided by the public sector.
In accordance with the Asian Development Bank (ADB, 2008) reports, effective
PPPs recognize that the public and the private sectors each have certain advantages,
relative to the other, in performing specific tasks. The government’s contribution to
a PPP may take the form of capital for investment (available through tax revenue),
a transfer of assets, or other commitments or in-kind contributions that support the
partnership. The government also provides social responsibility, local knowledge,
environmental awareness, and the capacity to mobilize political support. The
private sector’s responsibility in the partnership is to make use of its knowledge
and proficiency in commerce, management, operations, and innovation in order to
run the business more professionally and efficiently. Also, the private partner may
contribute investment capital based on the form of contract.
PPP Characteristics
Government's role is one of facilitator and enabler by assuming social,
environmental and political risks; private partner's role is one of financier,
builder and operator of the service or facility and it typically assumes
construction and commercial risk.
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The Government remains accountable for service quality, price certainty and
cost effectiveness (value for money) of the partnership.
The PPP process involves a full scale risk appraisal since the private sector
assumes the risk of non-performance of assets and realizes its returns if the
assets perform.
PPPs deliver efficiency gains and enhanced impact of the investments. They
lead to faster implementation, reduced lifecycle costs and optimal risk
allocation.
PPP does not involve outright sale of a public service or facility to the
private sector.
4.3 Types of PPP Contracts
According to Asian Development Bank (2000) and World Bank (2004) the most
common partnership options used world-wide are classified as-
a. Service Contract and Management Contract
b. Turnkey contracts
c. Lease contract
d. Concession
e. Private Finance Initiative and Private ownership
Each of these five categories has many variants. A categorization of the model with
main variants and characteristics is shown in Figure 4.1 and Table 4.1 below:
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Supply & Management
Turnkey
Leases
Concession
Private Ownership
PPP Options
Figure 4.1: Basics feature of PPP models (Source: World Bank report on PPP
projects, 1994)
Service Contracts and Management Contracts
A management contract is a contractual arrangement for the management of a part
or whole of a public enterprise (for example, a specialized port terminal for
container handling at a port or a utility or distribution and collection of electricity
bills by A.P Electricity distribution) by the private sector. These contracts allow
private sector skills to be brought into service design and delivery, operational
control, labor management, equipment procurement and are, generally not asked to
assume commercial risk. However, the public sector retains the ownership of
facility and equipment. The private contractor is paid a fee to manage and operate
services which is performance-based mobile health services, emergency response
services also work on operation and management contract.
Private
Sector Risks, obligations and durations Public
Sector
Public
Sector
Private
Sector
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Table 4.1: Different forms of PPP models
Broad Category Main Variants Operation
and
maintenance
Ownership
of Assets
Investment Assumption
of Risk
Duration
(years) of
contract
Service
contract and
Management
contract
Outsourcing Private Public Public Public 1-3
Management
Support
Public and
private
Public Public Public 1-2
Operational
and
management
Private Public Public Public 3--5
Turn Key
Contract
Private Public Public Public 3--5
Delegated
management
contracts
Lease contract Private Public Public Public 8--20
Affermage Private Public Public Semi-private 5--20
Concession Franchise Private/Public Public Private/Public Public and
Private
20--30
BDO Private Public Public Private 20--30
BOT, BOO Private Private/Public Private Private 20--30
Private
Ownership
PFI,
Divestiture
Private Private Private Private indefinite
Source: Guidebook on PPP in infrastructure, UNESCAP, 2011
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Turnkey Contracts
Turnkey is a traditional public sector procurement model for infrastructure
facilities. Generally, a private contractor is selected through a bidding process. The
private contractor designs and builds a facility for a fixed fee, rate or total cost,
which is one of the key criteria in selecting the winning bid and assumes risks
involved in the design and construction phases. The scale of investment by the
private sector is generally low and fora short-term. E.g. supply, erection and
commissioning of boilers, power plants, transmission lines, sub-stations etc.
Affermage / Lease
In this category of arrangement, the operator (the leaseholder) is responsible for
operating and maintaining the infrastructure facility (that already exists) and
services, but generally the operator is not required to make any large investment.
However, often this model is applied in combination with other models such as
build-rehabilitate-operate-transfer. In such a case, the contract period is generally
much longer and the private sector is required to make significant investment. The
arrangements in an affermage and a lease are very similar. The difference between
them is technical. Under a lease, the operator retains revenue collected from
customers/users of the facility and makes a specified lease fee payment to the
contracting authority. Under an affermage, the operator and the contracting
authority share revenue from customers/users. Land to be developed by the
leaseholder is usually transferred for a period of 15-30 years.
Concessions
In this form of PPP, the government defines and grants specific rights to an entity
(usually a private company) to build and operate a facility for a fixed period of
time. The government may retain the ultimate ownership of the facility and/or right
to supply the services. In concessions, payments can take place both ways:
concessionaire pays to government for the concession rights and the government
may pay the concessionaire, which it provides under the agreement to meet certain
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specific conditions. Usually, such payments by the government may be necessary
to make projects commercially viable and/or reduce the level of commercial risk
taken by the private sector, particularly in a developing or untested PPP market.
Typical concession periods range between 5 to 50years.
Private Finance Initiative (PFI)
In the private finance initiative model, the private sector remains responsible for the
design, construction and operation of an infrastructure facility. In some cases, the
public sector may relinquish the right of ownership of assets to the private sector.
The public sector purchases infrastructure services from the private sector through
a long-term agreement. PFI projects, therefore, bear direct financial obligations to
the government in any event. The public sector’s main advantages lie in the relief
from bearing the costs of design and construction, the transfer of certain risks to the
private sector and the promise of better project design, construction and operation.
4.4 Different Models for Public Private Partnership (PPP) in Infrastructure
PPP is a mode of providing public infrastructure and services by Government in
partnership with private sector. It is a long term
arrangement between Government and private
sector entity for provision of public utilities and
services.
These models operate on different conditions on
the private sector regarding level of investment,
ownership control, risk sharing, technical
collaboration, duration of the project, financing mode, tax treatment, management
of cash flows etc. Following are the main models of PPPs (Source: Website of
Public Private Partnership Authority Bangladesh).
(a) Build Operate and Transfer (BOT): In this model, the private sector is
required to meet the construction cost and the expenditure on annual maintenance.
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The private partner recovers the entire cost along with the interest and a return on
investment out of the future toll collection. The viability of the projects greatly
depends on construction costs and traffic. This is the simple and conventional PPP
model where the private partner is responsible to design, build, operate (during the
contracted period) and transfer back the facility to the public sector. Role of the
private sector partner is to bring the finance for the project and take the
responsibility to construct and maintain it. In return, the public sector will allow it
to collect revenue from the users. The national highway projects contracted out by
NHAI under PPP mode is a major example for the BOT model. The project is built
and operated by the private partner and by some consented agreement, the asset is
reverted to the state at a specified period. (Kwak et al., 2009).
(b) Build-Own-Operate (BOO): This is a variant of the BOT and the difference is
that the ownership of the newly built facility will rest with the private party here.
The public sector partner agrees to ‘purchase’ the goods and services produced by
the project on mutually agreed terms and conditions. Under the BOO model, all
project responsibilities are assumed by the private actor, except that only in the
initial conception stage, the government will participate probably in order to put
forward the ideas of the project (Rui, 2008).
(c) Build-Own-Operate-Transfer (BOOT): This is also on the lines of BOT.
After the negotiated period of time, the infrastructure asset is transferred to the
government or to the private operator. This approach has been used for the
development of highways and ports.
(d) Build-Operate-Lease-Transfer (BOLT): In this approach, the government
gives a concession to a private entity to build a facility (and possibly design it as
well), own the facility, lease the facility to the public sector and then at the end of
the lease period transfer the ownership of the facility to the government.
(e) Lease-Develop-Operate (LDO): Here, the government or the public sector
entity retains ownership of the newly created infrastructure facility and receives
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payments in terms of a lease agreement with the private promoter. This approach is
mostly followed in the development of airport facilities.
(f) Rehabilitate-Operate-Transfer (ROT): Under this approach, the
governments/local bodies allow private promoters to rehabilitate and operate a
facility during a concession period. After the concession period, the project is
transferred back to governments/local bodies.
(g) DBFO (Design, Build, Finance and Operate): In this model, the private party
assumes the entire responsibility for the design, construction, finance, and operate
the project for the period of concession. The private partner designs, builds,
finances and operates the project but with government maintaining full ownership.
(Kwak et al., 2009).
(h)Management Contract: Here, the private promoter has the responsibility for a
full range of investment, operation and maintenance functions. He has the authority
to make daily management decisions under a profit-sharing or fixed-fee
arrangement.
(i) Service Contract: This approach is less focused than the management contract.
In this approach, the private promoter performs a particular operational or
maintenance function for a fee over a specified period of time.
(j) Joint Venture: It is “a newly established company owned by both the public
authority and private company” (Jeffares et al., 2009). In Bangladesh it means
power plants developed under Policy guideline for Enhancement of Private
Participation in the Power Sector, 2008.
(k)Private Finance Initiative (PFI): It is “a form of capital outsourcing but with
partnering contract. Public authority procures investment and services in relation to
an asset with a design, build, finance and operate contract with a private provider”.
(Jeffares et al., 2009).
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4.5 Layers of Public Private Partnership
Public Private Partnerships (PPPs) have been stated that the formal and structured
cooperation between the public and private consortiums to accomplish a joint
venture, sharing the risks, resources and costs for developing the products and
services. PPPs have many models and theories practices in all over the world. The
models being practiced in the countries vary in accordance of the contexts. A good
number of theories are found in describing the PPPs. From which, the dimensions
of PPP phenomenon of Hodges (2010b) and three-layer PPP theories are most
popular ones.
To the context of Bangladesh and best describes the current study aims and
objectives, Three-Layers a public private partnership framework is directly aligned
with. The current model was adopted by Carbonara et al., in 2012. This framework
was developed by examining the Italian PPP practice and taking the case of Italy.
In this framework, the researchers have identified a bunch of variables derived
from the various dimensions resulted from the three layers of PPP practices. They
have found that the PPP has been used in congruent to the three-layer regulations
and demands. Following table shows the PPP framework adopted by the scholars.
From the very beginning, the researchers identified that almost all of the PPP
projects follows the three steps in project implementation in a PPP cycle. They
must obey and maintain the rules and regulations imposed by the country and then
the sector based requirements in this regards. Finally, the specific projects seek
many arrangements by which the project will be achieved.
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Table 4.2: Three layers public private partnership framework (Adopted by
Carbonara et al., 2012) P
ub
lic
Pri
va
te P
artn
ers
hip
s (
PP
P)
Layers Dimensions Variables
Co
un
try
Institutional Political-ideological influences
Design of government institutions
Attitude towards and use of New Public
Management
Legal PPP formalization by a Government
legal/statutory framework
Economic Taxation and its change
Indebtedness
Investment needs
Financial Access to capital and credit markets
Sec
tor
Industry
organization
Regulatory regime
Organizational structure
Market
Structure
Demand
Competitors
Performance Attractiveness/profitability
Pro
ject
PPP
Arrangements’
Structure
Use of private resources and expertise
Time horizon of contract
Revenues sources
Special purpose
vehicle (SPV)
Risk allocation
PPP
arrangements’
Financing
Use of private finance
Type of funding options
Debt to equity gearing
Investment value
The country perspective; first layer of PPP application follows the four dimensions.
It is based on the types of institutional, legal, economic and financial dimensions
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exposed and practiced by the government of the country. For instances, the
variables of the institutional dimension depend on the political and ideological
influence of the ruling party, design, forms and structures of the government
institutions, and attitudes towards the PPP implications as well as the use of new
public management tools in the public administration. Second dimension of country
perspective of PPP is legal basis for adjoining the PPP in the line of government
objectives. It is influenced by the PPP formalization by a Government legal and
statutory framework in the formal functioning.
The economic dimension of the PPP’s country layers identified three basic
variables valued from governmental taxation systems and its changing behavior,
indebtedness and investment needs. These variables have some sorts of values to be
determined in the PPP execution like; level of taxation, level of public debt, needs
for the development of public infrastructure as well as the maintenance and
regulations of the existing public infrastructure. Finally, the fourth dimension of the
Country layer perspective of PPP is based on financial issues. Access to capital and
credit markets for financial inclusion as well as exclusion will be based on
existence of strong constraints and determinants to obtain capital and/or credit from
the market.
The second most luminous tier of the PPP will be shaped in accordance of the
sector perspective. Sector based analysis will serve the supplies and demands of the
PPP outcome depending on multifarious ingredients. The sector analysis of the PPP
layer has three dimensions; industry organization, market structure and
performance. All of these three scopes have been derived from the variables which
leads the values to actions. Every government has some key mandates to be
accomplished in their regime. This regime also based on the public and private
organizational structure and strengths. So that, regulatory regime is a crucial
variable for executing the PPP based on the organizational structure. Moreover, for
some special cases, many projects and programs government takes to regulate or
deregulate. Hence, the regulatory framework of the government is important feature
of PPP identification and implementation. On the other hand, role of private sector
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could not be denied in this regards to extends of level of private sector participation
in PPPs.
The market structure has two key variables; demands and competitors. The demand
for the services will be bested upon the level of demand and elasticity of demand
for the PPP services to be accomplished. Moreover, the market monopolistic
natures, existence of substituting services in the other sub-sectors as well as the
existence of substituting routes for the same and similar sub-sectors are crucial
most important for the competitors in the sectors. Finally, the sector analysis of the
PPP seeks the performance of the sector like attractiveness for the project and
services as well as the profitability of the project valued from the potential net
earnings and revenues.
The project; third and final layer of the PPP framework depends on PPP
arrangements’ structure and PPP arrangements’ financing. Contract types based on
the legal structure of the transaction and operational aspects, use of private
resources and expertise, time horizon of the contract agreements, revenue sources,
special purpose vehicle and risk allocation are the variable derived from the PPP
arrangements structure. Management contact, BLT, DB, DBOM, DBFO, BOT,
BOOT and BOO are most popular operational contracts of PPP.
Use of private financing, type of funding options, debt to equity gearing and
investment value are the financing arrangements of PPP. PPP project might be
wholly private or public sector financing or partially both. It might be financed
from bank debt, bonds, equity and loan from the shareholders. So that that the debt
gearing might be placed high and low. As a result, the, PPP project could be
identified in a systematic financial framework to be followed by both of the public
and private sector.
The current study on aiming at measuring the performance of PPP in infrastructure
projects, costs and quality of services provided and environmental requirement of
the projects are identified using the above described theory. The theory also found
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the barriers of public and private sectors in infrastructure projects by applying
numerous variables used in the theory. The theory used to describe the performance
of the PPP in regards to the environmental requirement is a by-product of the
performance dimension of the sector analysis of PPP. Thus, the alignment,
congruity and configuring characteristics of the applied theory is best described to
identify, measure and analyze the study objectives.
4.6 Phases for Implementation of PPP Project
Identifying, developing and implementing a project on PPP mode involves a series
of steps and is put into four phases as seen in figure 2.2
Figure 4.2: Phases for implementation of PPP project (Source: User guide for
developing toolkit for PPP, 2010).
Phase 1: Project Identification and Need Analysis: Potential PPP projects are
identified on the basis of an analysis of the need for infrastructure services and the
options for meeting the service are considered in terms of the need for and type of
assets. Potential PPPs are then evaluated for their suitability for development as
PPPs and a pre-feasibility report is prepared.
Phase 1:
Strategic planing, Project pre feasibility, ppp suitability testing, internal clearance
Phase 2:
Full feasibility study, ppp preparaton, Clearance
Phase 3:
Procurement, Final approval, Award
Phase 4:
Implementation and monitoring
PPP identification PPP development pipeline PPP operation
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Phase II: Full Feasibility Study and PPP Preparation: A potential PPP that was
considered suitable in the Phase 1 analysis is studied in detail to continue to the
procurement phase. Identification of risks factors for the project, value for money
analysis are undertaken to establish the economic viability of the project.
Phase III: PPP Procurement: The procurement process takes place, an
application is made for final approval, the preferred bidder is selected and the
project is taken to technical close.
Phase IV: Contract Management and Monitoring: The Sponsoring Authority
manages the PPP throughout its life, including monitoring the private partner’s
performance against the requirements of the Concession Agreement. Phase IV
begins at the pre-operative stage and spans the construction stage (where relevant),
the operations stage, and contract closure and asset transfer.
4.7 Formation of a PPP Project
In a PPP model the private-sector consortium forms a special company called a
“Special Purpose Vehicle” (SPV) for each project, to develop, build, maintain and
operate the project for the contracted period. In cases where the government has
invested in the project, it is allotted (but not always) an equity share in the SPV.
The consortium is usually made up of project sponsor(s), building contractor, a
maintenance company and bank lender(s). SPV is the legal entity that signs the
contract with the government and with subcontractors to build the facility and then
maintain it. The SPV has no other assets other than the project assets. These
projects are characterized by non-recourse or limited recourse financing where
lenders are repaid from only the revenue generated by the projects. A non-recourse
loan means the loans are secured by the project assets and paid entirely from the
cash flow rather than from the general assets of the sponsors. Limited recourse
finance means a debt in which the creditor has limited claims on the loan in the
event of default. It is in between secured bonds and unsecured loans. From the legal
perspective it is the SPV that undertakes the project and therefore all contractual
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agreements between the various parties will be negotiated between themselves and
the SPV. Figure 4.3 presents the typical model of a PPP project.
Figure 4.3: Typical model of a public private partnership project (Source: The
World Bank 2014, Public Private Partnership, Reference guide version-2.0)
PPPs are a partnership between the public (government) and the private sector and
commitment from the government is one of the key factors for the success of the
PPP. If the government has contributed equity in exchange for shares in the SPV,
they have equal rights and equivalent interests tot eh assets within the PV as other
stakeholders. The financing of a project will be made of different amounts of debt
and equity, the source and structure of which will vary depending on the project.
The debt financing will generally be provided by the government sponsor and
equity financing is by the private sponsors, in exchange for ownership in the SPV.
For debt financing, the investment needs of the project are met by the budgetary
provisions. An escrow account is an account setup and managed by the SPV in
order to safeguard the project revenues for the purpose of ensuring that debt service
obligations are met. An escrow account can also be used to hold deposit in trust
until certain conditions have been met.
Equity
Investors
Project
Company Loan Agreement
Shareholders Agreement
Government:
Implementing Agency
Lenders
PPP Agreement
Direct Agreement
EPC
Contractor
O & M
Contractor
EPC Contract
O & M Contract
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4.8 Parties Involved in a PPP Project
There are a number of major parties to any BOT project, all of whom have
particular reasons to be involved in the project (SAIIA, 2005). The contractual
arrangements between those parties and the allocation of risks, can be complex.
The major parties to a BOT project will usually include:
4.8.1 Government Agency
A government department or statutory authority is a pivotal party. It will:
Grant to the sponsor the "concession", that is the right to build, own and
operate the facility,
Grant a long term lease of or sell the site to the sponsor, and
Often acquire most or all of the service provided by the facility.
The government's co-operation is critical in large projects. It may be required to
assist in obtaining the necessary approvals, authorizations and consents for the
construction and operation of the project. It may also be required to provide
comfort that the agency acquiring services from the facility will be in a position to
honor its financial obligations. The government agency is normally the primary
party. It will initiate the project, conduct the tendering process and evaluation of
tenders, and will grant the sponsor the concession, and where necessary, the offtake
agreement.
4.8.2 Sponsor
The sponsor is the party, usually a consortium of interested groups (typically
including a construction group, an operator, a financing institution, and other
various groups) which, in response to the invitation by the Government
Department, prepares the proposal to construct, operate, and finance, the particular
project.
The sponsor may take the form of a company, a partnership, a limited partnership, a
unit trust or an unincorporated joint venture. The investors in the sponsor are often
referred to as the "equity investors" or the "equity providers". The equity
investment in a project is approximately 20% of the cost of the project. Equity
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funds are, however, expensive compared to the cost of debt. An equity investor
may require a return of 20% to 25% in today's market to compensate it for
assuming the major risks inherent in an infrastructure project. As a result it may be
cost-efficient for equity to be much less than 20% of the project cost. The sponsor
may be a company, partnership, a limited partnership, a unit trust, an
unincorporated joint venture or a combination of one or more.
4.8.3 Construction Contractor
The construction company may also be one of the sponsors. It will take
construction and completion risks, that is, the risk of completing the project on
time, within budget and to specifications. These can be sizeable risks and the
lenders will wish to see a construction company with a balance sheet of sufficient
size and strength with access to capital that gives real substance to its completion
guarantee. The construction risk is then taken by the construction company.
Further, depending upon the nature of the infrastructure, the commissioning risk is
often allocated to the construction company.
The sponsor will aim to require the construction company to enter into a fixed price
fixed time construction contract. However, this is rarely fully achieved, as there are
normally some costs or timing issues which are not taken by the construction
company which can lead to variations in price or timing. The operator will be
expected to sign a long term contract with the sponsor for the operation and
maintenance of the facility. Again the operator may also inject equity into the
project. There has not been a shortage of operators, mainly from offshore, for
proposed infrastructure projects. This probably has a lot to do with the fact that
operators tend to accept little risk in the form of up-front capital or expenditure. An
operator simply anticipates making a profit from operating the infrastructure more
efficiently than an equivalent government run project.
4.8.4 Financiers
In a large project there is likely to be a syndicate of banks providing the debt funds
to the sponsor. The banks will require a first security over the infrastructure
created. The same or different banks will often provide a stand-by loan facility for
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any cost overruns not covered by the construction contract. As the financing of
BOT structure projects is a form of project finance, debt financiers will undertake a
review of all core project documents to assess the allocation of risks and how that
allocation impacts upon their credit approval. There has been some difficulty in
attracting debt financiers to infrastructure projects, mainly because of the long term
nature of the repayment of the bank debt, which may have a repayment term of up
to 20 years, and the large number of infrastructure projects currently in the market
place.
4.8.5 Equity Investors
It is always necessary to ensure that proposed investors in an infrastructure project
have sufficient powers to enter into the relevant contracts and perform their
obligations under those contracts. Life insurance companies and trustees of
superannuation funds usually invest in equity of infrastructure projects.
4.8.9 Other Parties
Other parties such as insurers, equipment suppliers and engineering and design
consultants etc. will also be involved.
4.9 Financing of PPP Projects
PPP projects require, formulating a complex financial package which involves
financial viability, addressing contractual agreement and risk allocation among the
two parties to achieve successful financing. The technique of financing of PPPs is
closely linked to “Project Finance”. The term project financing basically deals with
the financing of an economic unit. The lender looks initially into the cash flows and
earning of that unit as the source of funds from which a loan will be repaid to the
assets of the unit as collateral for the loan. The PPP structures are typically more
complex than traditional public procurement of assets, due to the number of parties
involved and particularly the mechanism to share the risks. In project finance,
lenders and investors rely either exclusively “non-recourse” or mainly “limited
recourse” on the cash generated by the project to repay their loans and earn a return
on their investments. This is in contrast to corporate lending where lenders rely on
the strength of the borrowers balance sheet for their loans. The financing structure
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is designed to optimize the cost of finance for the project and allocation of risks
between the public and private sectors as agreed in the PPP contract. Table 4.3
below shows the various financing sources that can be tapped for devising financial
packages.
Table 4.3 Financing sources for PPP projects
Domestic sources External sources Domestic sources External sources
Equity
Domestic developers
(independently or in
collaboration with international
developers)
Public utilities (taking minority
holdings)
Other institutional investors
(likely to be very limited)
International developers
(independently or in collaboration
with domestic developers)
Equipment suppliers (in collaboration
with domestic or international
developers)
Dedicated infrastructure funds
Other international equity investors
Multilateral agencies (International
Finance Corporation, Asian
Development Bank)
Debt
Domestic commercial banks (3-
5 years)
Domestic term lending
institutions (7-10years)
Domestic bond markets (7-10
years)
Specialized infrastructure
financing
Institutions
International commercial banks (7-10
years)
Export credit agencies (7-10 years)
International bond markets (10-30
years)
Multilateral agencies (15-20 years)
Bilateral aid agencies
Source: ADB: Proposed Multitranche Financing Facility India: India
Infrastructure Project Financing Facility, November, 2007
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4.10 Strategic and Policy Issues in Infrastructure PPP
Because of the very specific nature of the PPPs in infrastructure sectors, some
strategic and policy issues should be taken into account when policy-makers
consider the implementation of PPP models. Discussing these issues in detail goes
beyond the scope of this paper, so it would be sufficient to touch upon the most
important ones.
4.10.1. Choosing the Private Partner
Choosing a qualified private partner is a crucial issue for the success of
infrastructure PPPs. The selection process goes through many technical procedures,
and includes four stages. Firstly, the government issues a Request for Expressions
of Interest (RFEI) or Request for Qualifications (RFQ) or both depending on
government’s knowledge and understanding of the issue at hand.
Secondly, the government evaluates the submitted RFQ and RFEI according to
specific criteria to be sure that the needed qualifications are found in the interested
parties. Thirdly, the government issues an RFP, in order to provide clear guidelines
for submissions resulting in innovative and cost-efficient proposals. Finally, the
presented proposals are evaluated by a selection panel, which chooses the most
appropriate.
4.10.2. Identifying Roles, Risks, and Responsibilities
Roles, risks, and responsibilities of the involved parties should be clearly identified
in the PPP contract. The function of the state is primarily a regulatory one, aimed at
ensuring that the strategic contribution of infrastructure sectors is directed at
constructive economic and social ends. In addition, the state has a vital financing
role to play aimed at securing equity of access to infrastructure services (Ernst,
1994). In all cases, the PPP contract should state clearly, which party is owning
assets, providing capital financing, providing working capital, making additional
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capital investments, operating and maintaining the facility, exercising day-to-day
management, and bearing risks.
Risk Involved in PPP Projects
Risk is a fundamental feature of any PPP project and it substantially influences the
total project cost. It is essential for the public and private partner to extensively
evaluate all the potential risks throughout the whole life of the project to decide
whether to take up the project or not and what type of PPP model would be most
appropriate for the project .PPP projects carry several risks that are unique to this
type of delivery system in addition to the risks associated with more traditional
assignments. Once the bidder has been selected and the two parties are at the
negotiation stage both the parties need to determine the most suitable risk sharing
arrangement that optimizes the benefits and minimizes the loss to both the parties.
Risk Management in PPP projects
Risk Management is the process of identifying, analyzing and addressing
significant risks on an ongoing basis. The key aspect of a PPP project is that the
risk is allocated to the party who can best manage it. There are three ways to
allocate the risks in a PPP project:
Transferred risks–Risks transferred to the concessionaire
Retained Risks- Risk retained by the Public party
Shared Risks: Risks shared between the concessionaire and the Public party.
The risk management consists of the following phases subject to negotiations
among the public and private partner.
Risk Identification: Set up the list of project risks and identify those with the most
potentially adverse impact.
Risk Assessment: Analyze the risk with different quantitative and qualitative tools.
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Risk Allocation: Distributing the various risks arising in the project, to the party
who can best manage it.
Risk Mitigation: Both the parties can use different risk management strategies
Types of Risks associated with a PPP Project-
I. Political risk
II. Commercial Risks or Financial Risks
III. Legal risks
IV. Development risk
V. Construction risk
VI. Operational and Maintenance risk
VII. Demand risk or Revenue risk
VIII. Force majeure risk
IX. Management Risk
X. Design Risk
XI. Cost Escalation or Cost Overrun risk or completion risk
XII. Supply Risk
Some of the risks and actions available to the concession company include:
Performance risk: The completed facility cannot be effectively operated or
maintained to produce the expected capacity, output or efficiency.
Operation cost overrun: The operating costs exceed the original estimates.
Operating Contractor Default: The concession company may terminate the
operations and maintenance contract and appoint a new O&M contractor.
Default: The default may be caused by the actions of a third party, in which
case the concession company could make claims of damages against that
party.
Risk Assessment: PPP projects require a sophisticated analysis of risk and their
impact, to adopt the strategies for risk management. There have been many analysis
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tools and procedures for mitigating the risky nature of construction projects.
Historically, the probability theory is widely used an uncertainty reasoning tool.
Risk Allocation: Distributing the various risks arising in the project, to the party
who can best manage it by creating a risk matrix. A Risk Matrix identifies project
risks, consequences, probability of occurrence, costs and allocation that is used
during risk assessment. This is a simple mechanism to increase visibility of risks
and assist management decision making. Many standard risk matrices exist in
different contexts but individual projects and organizations may need to create their
own or modify an existing risk matrix.
4.10.3 Introducing Competition:
Competition involves rivalry among firms across all dimensions of the services
such as price, quality, and innovation (Baldwin & Cave, 1999:210). It can be
introduced before, during, or after PPP of infrastructure sectors (Nestor &
Mahboobi, 1999). Scholars argue that the long-term success of the PPP will stand
or fall by the extent to which it maximizes competition (Moore, 1986). The scope
of competition depends upon a variety of considerations, such as cost conditions in
the industry, technological factors, and social and economic considerations
(Baldwin & Cave, 1999; Skoufa et al., 2001). The process of introducing
competition in infrastructure sectors requires in most cases restructuring of the
industry to create competition for the market.
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Table 4.4: Typical allocation of risk (European Commission, 2003)
Risk
Category
Allocation Comment
Planning Risk May be retained by contracting authority for pilot projects.
However, there may be occasions when transfer in whole or part
is appropriate or unavoidable
Design and
Construction
Risk
Transferred to contractor through payment mechanism Contractor bears risk of cost and time
overruns. Contracting authority retains risk
of changes to output specification
Operating
Risk
Transferred to contractor under DBO, DBFO and concession
contracts through payment mechanism.
Deductions are made from payments for
failure to meet service requirements
Demand Risk Retained under DB and DBO contracts may be transferred under
DBFO and concession contracts to ensure fitness for purpose
throughout the duration of the contract.
An example of demand risk transfer is when
the contractor recovers its costs through user
charges.
Residual
Value risk
Retained under DB and DBO contracts. May be transferred
under DBFO and concession contracts to ensure fitness for
purpose throughout the duration of the contract.
Contractor carries residual value risk if asset
not automatically transferred to contracting
authority at end of contract.
Financial
Risk
Financial risk often transferred or shared under DBFO and
concession contracts
An indexation mechanism may be used
Legislative
Risk
Legislative risk often retained or shared. Government is often
best placed to control regulatory and legislative risks
Key issue is whether the regulatory or
legislative change is discriminatory in
respect of the specific project or sector.
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4.11 Barriers for Implementing PPP
SLEEPT Framework
Despite the huge identification of PPPs and its increasing usage in infrastructure
development, the experience of both the public and private sector with PPP has not
always been positive across the globe (Kwak et al., 2009). A number of PPP
projects are either held up or terminated particularly in developing countries. This
has triggered previous researchers to conduct studies on barriers to PPPs
implementation. This research is a precursor to a full investigation of this in the Sri
Lankan context, and as such is intended to develop a robust framework of barriers.
This is most useful if it is constructed in accordance with a pre-existing structure
such as Zhang’s SLEEPT framework (Zhang, 2005). The following sections
present state of the art in relation to each of the characteristics represented in the
framework acronym.
Social Barriers
A considerable number of social barriers indicating public opposition as the most
critical to take into matter supported by a number of researchers (El-Gohary et al.,
2006; Zhang & AbouRisk, 2006; Grimsey & Lewis, 2004). Although not stating in
the same template Gunnigan & Rajput (2010) also have exposed that cultural
impediments and societal discontent against the private sector governing towards
lack of confidence in them distracting private sector from investing in PPP projects.
The distrust in private sector is not the only reason for refusing PPP but also due to
high user charges of the public services and facilities once private investments are
used to supply services. Even though the living status is improved through these
projects society still pulls back the proper implementation because of the nature of
the procurement which is not the traditional and the doubt that the future generation
will be in depth even before their birth if the PPPs are to continue as the private
sector is going to recover the investments for a long period of time. Moreover
misallocation of risks of PPP projects (Abd Karim, 2011) is also emphasized as
another drawback by the society where the private sector owns the whole income
though the risk is shared with public sector.
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Legal Barriers
The literature demonstrated inadequate coverage of PPP legal regime, poor
regulatory frameworks and weakness in enforcement of policy, lack of institutional
capacity and PPPs strategy, absence of PPP disputes resolving legal institute among
others as legal constraints for proper implementation of PPPs in most developing
economies. This indicates that some developing countries governments with less
matured economies execute PPPs even when overall PPP policies are absent, which
drives towards improperly established goals and objectives ultimately creating
greater possibility of issues with projects implementation. PPP generates
exceptional pressure on the legal regime affecting economic maturity, renaissance,
and mechanism for developing infrastructure. Although in PPP projects a large
number of agreements and conditions are involved in documentary lack of a proper
package has become a barrier to proper implementation of PPP. PPP involves a
great deal of disputes among parties involved due to different interests of
stakeholders, for protection of public interests and legitimate rights of private
sector. According to Grimsey & Lewis (2004) and Satpathy & Das (2007) lack of
well-established legal framework, has given rise to number of disputes which are
inevitable in PPP.
Economic Barriers
PPP project preparations are considered complex in nature due to variety of
interests and objectives of involved parties which has higher possibility of conflicts
compared to a traditional procurement contract. This nature creates the necessity of
extensive expertise input and comparatively high costs in PPP projects and requires
lengthy time in negotiation stage. Hence the financial requirement to be achieved
has become a barrier in proper implementation of PPP in less mature economies
(Chan et al., 2010). Difficulties in obtaining long-term finance, lack of capacity of
the private sector to fully meet the challenge of investing in a very large number of
projects, and unfavorable economic and commercial conditions have been
identified as common constraints in achieving financial goals of PPP. Moreover
with the bidding procedure for PPP being expensive private sector confronts issues
in seeking financial partners also due to lack of confidence of investment banks and
financial institutions in new procurement methods. Corbett & Smith (2006) and
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Carrillo et al., (2008) mentioned that the potential high transaction costs create a
negative impact on proper implementation of PPP. Additionally, lack of
transparency in deals and corruption in both public and private sector has become a
major threat for PPP projects security. Even though many have identified high
transaction cost as the most affecting barrier Babatunde et al., (2015) had
discovered that perceptions of developing countries as high risk economies by
foreign investors and inadequate domestic capital markets among others were
identified as economic barriers to PPPs implementation in developing countries.
Environmental Barriers
The prior studies have revealed that land acquisition problems, lack of coordination
between national and regional governments, lack of transparency and
accountability, and acquisition of land for project from third parties as
environmental barriers to PPP projects. PPP projects require the transfer of rights of
public assets to the private sector in order to fulfill their operations effectively and
efficiently. But according to the legal systems transferring of property has many
restrictions regarding the level of environmental liabilities and occupiers liabilities
to be transferred with the property. Hence it has become a major constraint in PPP
implementation in many countries as land acquisition has not been easy due to
public distrust in private sector and many other social issues. Moreover obtaining
planning permission with an error free EIA (Environmental Impact Assessment)
report also require a considerable time and costs of getting approvals from the
relevant authorities is high. Thus these have prevented private sector interests in
investing in PPP projects.
Political Barriers
Lack of awareness about PPPs by politicians and decision makers, lack of political
willingness and commitment to develop PPPs have been stated by the researchers
as the constraints for PPP in developing countries. Moreover, political reneging,
politicization of the concessions and lengthy delays due to political debate also
have affected as barriers in implementing PPP in a more stabilized platform.
According to Kwak et al., (2009) insufficient contribution and lack of maturity of
governments to administer PPP projects has lead to project failure in developing
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nations. But Gibson & Davies, (2008) mentioned a contrast fact stating where in
mature economies local political opposition has become a barrier to PPPs. Hence it
is significant that political influence is a more crucial factor for proper
implementation of PPP in both matured and less mature economies. Moreover
absence of provision by governments of incentives, subsidies or viability gap
funding to overcome the financial issues in the private sector in investing in PPP
also creates an obstacle. In PPP only a fewer employment opportunities are
available compared to traditional method which would create an excessive floating
workforce in construction industry being a threat to any government in a
developing economy. Therefore lack of political willingness to develop PPPs on
such grounds has become a critical issue.
Technological Barriers
The literature review has identified non-availability of model concession
agreements, Lack of suitable skills and experience, inconsistent risk assessment and
management, and shortage of expertise as technological barriers to PPPs. Li et al.,
(2005) and Maralinga (2010) stated absence of an enabling institutional
environment for PPPs. Thus it is significant that less mature economies are seeking
knowledge and resources from developed nations in structuring a proper PPP
procedure where PPP process not clearly being defined has become a barrier to
proper implementation. Absence of a well-established institution has also being
identified as a barrier to PPP by Hamilton (2015). Uncertainty and lack of a clear
project pipeline, delayed communication of decisions and protracted procurement
processes together with complexity and relatively inflexible structures are also
issues in implementing a proper PPP in the real world scenario. Poorly designed
and structured projects would also pull back private sector investors from engaging
in PPP projects in the future.
4.12 Chapter Summary
Chapter four presents the conceptual framework for PPP projects. It defines PPP
projects, describes the various types of PPP models, the formation process and the
various parties involved for implementation of the project. It discusses the ways for
financing PPP projects and the different risks associated with these projects.
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CHAPTER 5
PPP IN BANGLADESH: FROM POLICY TO ACTION
5.1 Introduction
This chapter reflects on the mainly background of PPP in Bangladesh. We focus
about the previous initiatives, Weakness in Previous framework, applicability of
PPP, Non-applicability of PPP and sectorial coverage of PPP.
5.2 Background
In order to achieve the Vision 2021 goal of Bangladesh becoming a middle income
country by 2021, we will need to ensure a more rapid, inclusive growth trajectory.
To reflect the aspirations of the people the target of the government is to raise the
GDP growth rate to 8 percent by 2013. To achieve this GDP growth rate, the share
of investment to GDP needs to be raised to 35-40 percent. At present average
investment GDP ratio is 24-25 percent, which is lower than the national savings
ratio.
One estimate suggests that to sustain GDP growth rate of 8 percent in 2013 and
beyond requires additional USD 28 billion or BDT 1.96 trillion for 2010-2015
(MoF, GOB, 2009). To reduce the investment deficit, participation of the private
sector through public-private partnership (PPP) is an important route. In order to
create an enabling environment for attracting private investments on a sustained
basis, GOB has taken a series of measures. Previously, the GOB had issued the
Bangladesh Private Sector Infrastructure Guidelines (PSIG) for implementing the
PPP Projects. There has been some success in attracting private investment through
PPP route in the power, gas and telecom sectors.
The Government seeks more investment in these and other sectors such as ports,
roads, railway, water supply, waste management, tourism, e-service delivery etc.
For the first time in the country, the Government through its national budget FY
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2009-10 introduced the concept of PPP budget. This is a very strong statement and
commitment for the development of PPP in the country. In addition, the
Government issued a position paper on PPP, titled, “Invigorating Investment
Initiative through Public-Private Partnership” dated June 2009. The PPP Budget
aims to provide support for upfront development of PPP projects, create a
mechanism for targeted subsidies and set long term financing of PPP projects.
The government has taken a two-pronged strategy for building public-private
partnership: one is to attract investment for projects, where building new
infrastructure and expanding existing infrastructure is the major component; the
second is to attract innovation and sustainability of public service delivery to the
citizens. While the government is committed to launch public-private partnership in
a big scale, the essential ingredient to that Endeavour is to set up a forward looking
strategy and a framework for operationalization of public-private partnership as
well as clear-cut procedural guidelines for the sake of ensuring transparency and
building confidence among the private sector players.
A wide spectrum of PPP arrangements exists, differing in purpose, service scope,
legal structure and risk sharing. The choice of the PPP arrangement for a particular
project will depend on social and economic importance and potential value for
money to be generated under such arrangement. PPP fosters economic growth by
developing new commercial opportunities and increasing competition in the
provision of public services, thus encouraging crowding-in of private investment.
Successful application of PPP concept through this policy and Strategy” document
is likely to open up the doors for increased flow of investment from both local and
foreign investors.
5.3 Emergence of PPP
The beginnings of partnership between private and public sectors can be traced as
far back as the Roman Empire two thousand years ago in Europe. A network of
postal stations was developed to accompany the vast expansion of the highway
system under the Roman legions. The postal stations, which were actually small
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communities centered around large stables, warehouses, workshops, hotels and
military barracks, were constructed and managed by a private partner for a five year
period, sometimes including maintenance of associated highway, under a contract
referred to as “manceps” and awarded by municipalities under competitive bidding.
The Romans also notably conceded the construction and operation of ports and
inland harbors.
However, this procedure disappeared with the fall of the Roman Empire and
reappeared only during the middle ages for the construction of new fortified towns
and the occupation of new lands in the south western region of France during the
12th and 13th centuries. Occupancy contracts for fortified towns concede the whole
villages to their occupants under collective emphatic contracts which compelled the
occupants to improve their village. Moreover, the practice of concessions on
activities under monopoly in the community (mill, press, baker, bridge etc.) as well
as their associated tolls, generally on bridges and highways, in which the
concessionaire paid a proportion of his income to the community to finance new
works, was well-established under medieval custom. During the 16th and 17th
centuries, European sovereigns, and particularly in France, began much more
expansive public works concession programs in canal construction, road paving,
waste collection, public lighting, mail distribution and public transportation. The
industrialization in Europe of the 19th century brought rapid urbanization and
expansion of public networks in transport (railways, tramways, metropolitan),
water supply and sewerage and energy. This expansion, achieved largely by private
entrepreneurs, marked the golden age of concessions in Europe. The creation of
railways took place under concessions in all European countries. In the North and
the South, liberal ideas spawned by the French revolution and particularly the
principle of free enterprise played an influential role in the systematic choice of
concession. This period was one of weak administrative structures in all fields of
delegated public action.
The 20th century European wars reversed the trend. The role of the State was
increased by wars, both in preparing for them as well as in dealing with their
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consequences. The disruption of countries, economies and long-term contracts was
strongly felt in all European countries. Rare before 1914, inflation and its effect
upon contracts became clear during the Great Depression of 1929. The ensuing
creation of the welfare state increased the role and resources of post-war states
substantially. As a result of economic turmoil and contractual standby or damage
during war years, concessions in many fields were cancelled and rarely
reestablished. The notion of state owned companies was born to avoid the financial
vulnerability of traditionally very long-term contracts, a movement which grew
throughout Europe during the post-war periods, and consequently the size of the
civil service sector increased considerably. In addition, with influence from
Communist ideology, collectivism was considered as a viable and desirable
alternative to free market principles. Thus, after World War I, new public
infrastructure was mainly designed, constructed and financed from public funds
and prior to 1982 there was very limited private financing of transport
infrastructure in developing or transition countries. One major exception in Europe
was the tolled motorway construction programs in France and Spain from the 1960s
financed by private consortia, mainly contractors and banks. However, the
economic shocks from the oil crises of the 1970s resulted in financial difficulty for
many of the concession companies with many being subsequently nationalized-in
Spain five out of twelve companies and in France, three out of four companies.
In the USA, PPPs have played a much less prominent role in the development of
transport infrastructure. Although private investors built the canals and railroads
that transformed the country in the 19th century, the modern highways that were
built in the 1930s and 1940s were built by public companies held by state and local
governments. Tolls were preferred in the eastern part of the country while western
states used revenues from a dedicated gasoline tax to finance un-tolled “freeways”.
From the 1950s, the creation of the national Highway Trust Fund, funded by a
national fuel tax of four cents a gallon, allowed the construction of the interstate
highways system.
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Throughout the industrialized and developing world, there has been a renewed
move to liberalization and privatization of infrastructure activities from the 1980s
and increasing dramatically into the 1990s. The first decade of the years 2000 has
seen some consolidation of certain PPP programs, stagnation of others and
expansion in new markets, notably in Asia.
Several developing countries have participated in this movement, pioneering
improved forms of PPP. Market leaders among emerging economies such as Chile,
Brazil, China, Hungary and, recently, India have gone further in introducing the
private sector in infrastructure development and maintenance than many industrial
countries. Simultaneously, initiatives aiming at outsourcing maintenance activities
to private firms are being implemented in Africa, Asia and to a larger extent in
Latin America (PPIAF, 2009).
Public-private partnerships are not new. As a matter of fact, concessions, the most
common form of PPPs–where the private sector exclusively operates, maintains
and carries out the development of infrastructure or provides services of general
economic interest – date back thousands of years. During the time of the Roman
Empire, concessions served as legal instruments for road construction, public baths
and the running of markets (Platz et al., 2016).
Other famous examples include medieval Europe, where as early as 1438, a French
nobleman named Luis de Bernam was granted a river concession to charge the fees
for goods transported on the Rhine (Bezançon, 2004). Examples abound since the
turn of the seventeenth and eighteenth century with many infrastructure facilities
(water channels, roads, railways) in Europe and later in America, China and Japan
privately funded under concession contracts.
While the practice has been around for millennia, the term “Private-Public
Partnership” or PPP was coined and popularized in the 1970s, when neo-liberal
ideas began questioning the previously dominant Keynesian paradigm and the role
of the state in the context of poor economic performance.
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Instead of ascribing poor economic performance to the failures or inadequacies of
the market, government failure or inefficiency was blamed (Gomes, 1990). New
ideas, such as New Public Management (NPM), became the new vogue. In this
context, PPPs were often invoked as alternatives to bureaucratic public services and
inefficient state owned enterprises, often for the promotion of privatization
(Cavelty & Sute, 2009).
It was argued that handing over public tasks to private actors, (i.e., to privatize
them, or to contract them out, or at least to carry them out in partnership with
private businesses) was the main means to downsize the role of the state, to
enhance the efficiency of the public administration and public service provision,
and to reverse previously alleged crowding out of the private sector by state owned
enterprises (Savas, 1982).
Initially, PPPs involved urban construction projects to facilitate joint development
and renewal of problematic urban zones (Budäus & Grüning, 2004). The modern
version of PPPs – whereby the private company is paid by the government rather
than by consumers–evolved in the UK in the 1980s ostensibly to enable the
government to develop infrastructure while adhering to strict borrowing limits or
fiscal rules to address rising public debt. PPPs were seen as mobilizing private
finance for public ends, under the rubric of the private finance initiative (PFI).
Over time, the concept of PPPs expanded to include joint technology or ecological
projects, as well as partnerships in the area of education, health services, and prison
incarceration (Vaillancourt, 2000). It has become an extremely heterogeneous
concept and, according to the critics (e.g. Linder, 2000), it has now evolved into a
catchall label for all possible new or known forms of collaboration between the
public administration and the private sector.
Private sector involvement in the delivery of public services is not a new concept;
PPPs have been used for over three decades, starting in 1970s. Initially focusing on
economic infrastructure, PPPs have evolved to include the procurement of social
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infrastructure assets and associated non-core services. PPPs are used in housing,
health, corrective facilities, energy, water, and waste treatment projects. PPP policy
has also evolved globally as public sectors budgetary challenges limit potential
options. One method of tapping into alternative sources of capital is the public-
private partnership.
According to the Federal Highway Administration (FHWA) of United States
Department of Transportation, PPP is defined as: “A contractual arrangement
between public and private sector entities pursuant to which the private sector is
involved in multiple elements of public infrastructure projects” (FHWA, 2010)
PPP could also be defined as: “Any medium to long-term relationship between the
public and private sectors, involving the sharing of risks and rewards of multi
sector skills, expertise and finance to deliver desired policy outcomes.” (Standard
& Poor, 2005).
Some definitions make it seem as though most of the risks are transferred to the
private sector. In reality, there is a relatively equal amount of risk transfer in a
properly modeled PPP. However, both the public and private sector shares the risks
and rewards potential in the delivery of the service and/or facility (The National
Council for Public-Private Partnership, 2009) develop the necessary skill base to
procure infrastructure by way of PPP, including the capacity to create and maintain
a regulatory framework.
Private participation in US infrastructure is not a new phenomenon. Roadways
were first developed in the eighteenth century by the private sector in the form of
toll ways and turnpikes. The private sector was also involved in the nineteenth
century in the development of canals and railroads. In the twentieth century, with
the growing economy and the need for new infrastructure, the state governments
and the federal government assumed the responsibility for providing infrastructure
(Nirupuma, 2009).
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In the early 1980s private participation in public sector projects emerged,
specifically in the increasingly developing southern and western states. The United
States Congress, in 1987, approved a pilot program authorizing 35% of federal
funding to be channeled into government-sponsored toll road projects in nine states.
Australia and most countries in Europe had previously effectively applied public
private partnership (PPP) in most projects. The States of California and Virginia
were among the leading states to introduce the PPP method of financing in their
state projects. The Dulles Greenway in Virginia was the first project executed in the
United States with the PPP model. The Virginia Department of Transportation later
implemented legislation permitting private participation in state projects. There are
currently 23 states in the United States as well as Puerto Rico which have passed
legislation to allow PPP application in transportation projects (FHWA, 2003).
The private sector over the years has become progressively innovative in several
developed countries, which has added substantial value to public procurement. The
United Kingdom has been a recent initiator of the current private sector
involvement with infrastructure projects. This has been the case with the
introduction of Private Finance Initiative (PFI). PFIs have been used for the
development and delivery of all types of infrastructure and services. Currently in
the United Kingdom, PFIs represent 10 to 13% of all UK ventures in public
infrastructure. About 100 PFI projects are undertaken per year. The increasing use
of PFIs has encouraged governments across the world to implement PPP
arrangements (International Comparative Legal Guide Series, 2008). The
Australian government has also used PPPs to deliver numerous infrastructure
projects. Ireland on the other hand has also used PPP for most of its transport
projects. In the Netherlands, PPP is used for social housing and urban
redevelopment programs. Asian countries such as India also have used PPP
highway projects. Japan has about 20 PPP projects set to be undertaken in the
future (Nguri, 2009). Canada has about 20% of all its new infrastructure projects
designed, built or operated by the private sector (Deloitte, 2010). Other developing
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countries from South America, Asia and Africa have also been looking in PPP
procurements (USCAP, 2007).
5.4 Previous Initiatives
Who first introduced Pubic Private Partnerships (PPPs)? This is a question that
often leads to endless discussions, provides an opportunity for one-upmanship and
is an entertaining diversion for practitioners on the margins of international PPP
conferences.
During these debates many examples are quoted–the early 20th century oil
concessions in the Persian Gulf, the late 19th century cross continental railway in
the USA and the Izmir-Aydn railway concession in present-day Turkey, the Rhine
river concession granted in 1438 (Uddin, 2015)and so on.
As debate on the origin of PPP continues, the modern-day popularity of PPPs is
more commonly acknowledged to have emerged from the United Kingdom,
following the introduction of Private Finance Initiatives in 1992’s autumn budget
statement by RH Norman Lamont, then Chancellor under John Major’s
Conservative government (Allen, G. 2001).
In the intervening years, many developed and developing nations have started PPP
programs of their own. Indeed, the growth of PPPs in developing countries is
nothing short of phenomenal, with the mechanism being used in more than 134
developing countries and contributing to 15–20 percent of total infrastructure
investment (World Bank Report, 2002-12).
This is also true of Bangladesh. In 2009, the Government of Bangladesh announced
the introduction of a revised PPP program (2009/10 Budget Speech by Hon.
Finance Minister A. M A. Muhith) in the 2009/10 Budget Session, and then
introduced a new PPP policy in August 2010 (PPP Policy 2010).
PPPs are not new in Bangladesh. Before the mid-1990s, the Government of
Bangladesh had entered into a number of individual PPP transactions. However,
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1996 marked the first time that a policy framework was introduced for PPPs in
order to enable private sector partnerships in power generation (The Private Sector
Power Generation Policy, 1996).
Through this policy, Bangladesh witnessed early success in PPPs. By 2001 – with
the support of the Asian Development Bank (ADB) and the World Bank – two
large power projects, the 450MWMeghnaghat and 360MW Haripur power plants,
were successfully contracted. This success in the power sector has continued with
approximately 2000 MW of installed capacity through Independent Power
Producers (IPPs), nearly 2500 MW of IPP projects in implementation and more
than 3000 MW of IPP projects in procurement.
To build on this success in other areas of infrastructure, the Government of
Bangladesh introduced the Private Sector Infrastructure Guidelines in 2004. This
marked the start of the program-based PPP initiatives in Bangladesh. However, the
results during this period were more modest, with only a handful of projects
coming to fruition. There was an urgent need to revise the PPP program so that it
could match the Government’s long term vision of growth and prosperity.
In 2010, the 6th Five-Year Plan (Sixth Five Year Plan, FY2011-FY2015, Strategic
Directions and Policy Framework, Planning Commission, Ministry of Planning,
Government of the People’s Republic of Bangladesh) was launched, outlining the
Government’s vision to improve the country’s trajectory of economic growth and
lead the country to an enhanced level of prosperity by reaching Middle-Income
Country status by 2021.
The Plan focuses on the enhancement of infrastructure investment from
approximately two to six percent of GDP, using PPP as a key tool in meeting this
infrastructure gap. PPPs would supplement traditional procurement in the
development of social and economic infrastructure in Bangladesh to deliver the
public services that can enable private sector entrepreneurship and unlock the
country’s growth potential.
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The PPP Policy 2010 introduced a comprehensive range of reforms, including tax
incentives for PPP projects, designed to develop a sustainable PPP program across
multiple sectors. These reforms were reinforced by the strong demonstration of
government commitment through the allocation of more than US$300 million for
PPPs in the 2009/10 Budget to support the development, financing and funding of
PPPs. The Ministry of Finance instituted a Viability Gap Fund for financing up to
30 percent of capital costs of PPP projects.
The PPP Office became operational in 2012 under the Prime Minister’s Office and
has been a key component of the new reforms. Since then, with the support of
ADB’s technical assistance project (TA-7691 (BAN): PPP Program
Operationalization (completed December 2013) and the World Bank’s IPFF (IDA
Credit # 4693-BD: Investment Promotion and Financing Facility (IPFF) Project
the PPP Office has spearheaded the development of PPPs in Bangladesh.
Starting from a handful of projects in 2012, the PPP Office is now supporting the
development and implementation of more than 40 PPP projects with a capital value
of around US$13 billion; this supplements a pipeline of over 20 projects in the
power sector. Projects in many new areas are being developed such as the
hemodialysis project, structured with the support of IFC and recognized as a
pioneering PPP in KPMG’s Infrastructure 100: World Markets Report.
With strong political support and enhanced institutional capability, underpinned by
real financial commitment and a PPP Act in the final stages of enactment in the
parliament, the key fundamentals are in place for an enabling PPP environment in
Bangladesh. The first signs of success are there, and a clear path has been laid out
for this success to continue and grow in the years ahead.
As PPP projects are delivered one after another, as lights get switched on in homes,
as industries get powered, as new roads mitigate transport bottlenecks and as new
health services save lives, it is worth sparing a thought for the one who introduced
PPPs. Through PPPs, developing countries now have an additional delivery
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mechanism to meet their public service commitment and drive increased
prosperity. PPPs have provided an enhanced opportunity to make a real difference
in the delivery of public services.
Perhaps we will never be able to identify who introduced PPPs. But let the debate
continue, as whoever did introduce PPPs has done the world’s developing countries
a wonderful favor.
TA (Technical Assistant) project “Private Sector Infrastructure Development
Project (PSIDP)” to initiate the development of an enabling and conducive
environment for PPP in 1997;Establishment of Infrastructure Development
Company Limited (IDCOL), a financing facility to provide long term debt
financing for PPP project in 1998 ; Establishment of Infrastructure Investment
Facilitation Centre (IIFC), a Government own entity with the mandate to provide
technical support for the development and implementation of PPP project in 1999.
Issuance of “Private Sector Infrastructure Guideline (PSIG)” with the intention to
harmonize the proceedings for development of PPP in 2004; Establishment of
“Private Infrastructure Committee (PICOM)”, a high power Inter-Ministerial
Committee with the objective to facilitate and promote PPP in 2004. The Board of
Investment was assigned the Secretariat of PICOM with IIFC as technical adviser.
5.5 Background of PPP Initiative and Support in Bangladesh
During the 1990, like many other countries in Asia, Bangladesh recognized the
need to encourage private participation in infrastructure services in order to
improve efficiency and reduce demand for scarce public resources. In this
backdrop, particularly focusing the power sector, a project finance workshop was
held in September 1996 at Rajendrapur Dhaka. Through this workshop, the Public
Private Partnership (PPP) program was started in Bangladesh.
In the context of facilitating the private sector investment in power sector, Private
Sector Power Generation Policy of Bangladesh was adopted in October 1996. The
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policy illustrates the modality for project implementation, financing arrangements,
security packages needed, provision of fuel, tariff setting criteria along with fiscal
and other incentives in private participation in power projects.
With the aim of translating the explicit policy commitment into actual investment
projects, and to carry forward the power sector reform activities in government of
Bangladesh created and set up power cell under the Ministry of Energy &Mineral
Resources (MEMR) in 1995 under the World Bank financed “TA for
Implementation of Bangladesh Power Sector Reform” project. The power cell has
the mandate to facilitate all stages of promotion, development, implementation,
commissioning and operations of private power generation projects and suitably
address the concerns of project sponsors. It has the mandate to assist project
sponsors to secure necessary consents and permits from government where such
consents and permits would be needed.
In 1997 the World Bank initiated a Technical Assistance Project “Private Sector
Infrastructure Development project (PSIDP)” as a vehicle for delivering assistance
to GoB for-
Proactively developing and marketing sound sub-projects for private
investment
Establishing speedy, competitive and transparent procurement processes for
realizing private sector participation in such sub-projects
Providing appropriate mechanism for reasonable risk sharing and mobilizing
commercial investment in the form of equity and debt financing for
infrastructure sub-projects and
Creating suitable legal and regulatory structure in various infrastructure sub-
sectors for sustained and efficient operation of private infrastructure
facilities.
The key constraint to sub-projects being implemented is the lack of long term debt
financing, which is necessary to ensure financial viability. The PSIDP, therefore,
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had the provision to provide long term debt financing from IDA resources by
establishing a long-term fund.
The implementation period of PSID project was designed for five years from
November, 1997 to December, 2002. Later on, it was extended up to 30 June, and
2004. The PSIDP had two components: project financing and sub-project
transaction development. Infrastructure Investment Facilitation Center (IIFC) was
mandated to coordinate sub-project transaction development. The Infrastructure
Development Company Limited (IDCOL) with other institutional and commercial
partners had the provision of mobilizing funds for private infrastructure projects.
In an attempt to enhance private infrastructure development, the government issued
the Private Sector Infrastructure Guidelines (PSIG) in October 2004. Following the
model of the Philippine inter-ministerial council, the Guidelines created a national
Private Infrastructure Committee (PICOM) under the Prime Minister's Office for
the facilitation and promotion of private infrastructure projects. Projects initiated by
private sponsors or line ministries require government approval to be listed as a
private Infrastructure Project. Based on PICOM's analysis and recommendation, the
Cabined Committee on Economic Affairs (CCEA) approves the project, following
which PICOM oversees its implementation by the executing agency. In the project
development process PICOM is assisted by the Major Terms and Conditions
Committee in preparing the Request for Proposals and by the Pre-qualification and
Tender Evaluation Committee in evaluating project proposals that have been
received .In the implementation of the Guidelines, the Board of Investment (BOI)
acts as the PICOM secretariat. IIFC, which has draft the Guidelines, has been
appointed by PICOM as its technical advisor on a limited scope basis. Later on in
the year 2006 Investment Promotion and Financing Facility (IPFF), a World Bank
financed project under Bangladesh Bank (BB), was created, mainly for lending to
infrastructure projects in the private sector.
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5.6 PPP Framework
PPP is not new to Bangladesh. For more than a decade the Government of
Bangladesh (GOB) has been pursuing the development of PPP supported by its
development partners. Despite some initial success, GOB’s efforts in creating an
enabling and conducive environment for the development of PPP has not delivered
the full level of success expected.
As a consequence, despite GOB’s efforts, the private sector is likely to be skeptical
towards GOB initiatives. It is important for restoring confidence that only PPP
projects are presented to the market that are most likely to succeed in terms of
bankability and Value for Money. This requires that the proposed PPP projects are
carefully screened and adequately prepared.
Preparing PPP arrangements requires specific competencies and ample time.
Competencies those are not quite commonly available within government agencies
as is also the case in Bangladesh. GOB has established a PPP Office, who with the
support of internal and external advisory support will help to facilitate the PPP
development and implementation process. The required resources both internally
and externally impose a severe demand on the government for preparing, tendering
and contracting, which is mostly higher than in case of conventionally procured
projects. In view of the limitation to the availability of such resources it is
important that they are applied to the PPP projects that are most likely to succeed.
This requires a careful screening process that filters the various initiatives into
successful PPPs.
Despite these benefits, it is possible that some Ministries will perceive the
screening process as unnecessarily burdensome at the early stage of project
development. This is certainly not the intent. The goal of the process is to elicit as
much usable information as possible, so as to allow the GOB to make intelligent
decisions at every step in the development process.
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The Government of Bangladesh (GOB) has issued in August 2010 a new policy
and guidelines for the formulation, appraisal and approval of Public Private
Partnership (PPP) projects (PPP Policy and Guidelines, 2010) rescinding the 2004
Private Sector Infrastructure Guidelines (PSIG) and reflecting the facilitating
framework for preparing and implementing PPP.
The Framework consists of 3 pillars:
(i) Legal Pillar
(ii) Institutional Pillar, and
(iii) Financial Pillar
Figure 5.1: PPP framework (Source: PPP Screening Manual, 2013)
The GOB recognized the need for further operational guidance in applying these
Guidelines and operationalizing these pillars. To implement this initiative an Asian
Development Bank supported Technical Assistance (TA) program, TA7691
(BAN) Public Private Partnership Program Operationalization, has been established
for the development of a set of deliverables to strengthen the enabling environment
for PPP, including operational guidelines for the different steps of a PPP lifecycle
and organizational plans for the key institutions and financial instruments. This PPP
PPP Program
PPP Objectives
Increase Private Sector Investment through PPP
Legal Pillar
2010 PPP Policy and Guidelines
2006 Public Procurements Act
2008 Public Procurement Rules
Institutional Pillar
PPP Office
PPP Advisory
Committee
PPP Unit at MOF
PPP Focal Points
Financial Pillar
BIFF
PPP TA Fund
VGF
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Screening Manual has been developed as one of the deliverables under that TA
program.
5.7 Legal Basis for the PPP under the Present Framework
Whether the present regulatory framework is sufficient to make the PPP initiative
effective in terms of project processing and financing aspects requires to be
revisited.
The Bangladesh Private Sector Infrastructure Guideline (PSIG) issued by the
cabinet Division in 2004 is currently the guideline for implementation of projects
under the PPP. This has not been issued under any law passed by the national
parliament. As a result, there were doubts and lack of clarity regarding the
consistency between Public procurement Regulations PPR 2003 and the private
sector project development; approval and financing that are to be implemented
under the jurisdiction of PSIG 2004. Later the Public Procurement Act (PPA) 2006
was enacted by the national parliament. Procurement Act 2006 through section 66,
which incorporated concessions agreement related provision, extended the
government’s legal jurisdiction to formulate independent PPP guidelines.
In the Public Procurement Rules (PPR) promulgated by the government in 2008,
rule 129 incorporates various PPP related models. In this regard as of now: PPA'
2006 section 66 and PPR' 2008 rule 129 may form the legal basis for project
implementation and contract execution under the PPP initiative. Therefore under
the present framework infrastructure development activities by the private sector
under PPP initiatives can be continued. However, the entire procedure should be
brought under the purview of a comprehensive framework in order to ensure
competent administration, regular monitoring, sound accountability and
professionalism, for which independent act and required legal framework must be
developed (GoB, MoF, 2009).
At present, project under the PPP initiative are being financed through IDCOL and
IPFF by the government. IDCOL is a company established under the Companies
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Act. On the other hand IPFF is a 5 year term project. Since IDCOL was established
under the Companies Act, through it necessary resources can be arranged for
financing large scale projects. However, due to failure to formulate appropriate
project proposals by ministries, divisions or agencies no initiatives were undertaken
to arrange large funs through IDCOL. In addition, there is lack of clarity and
hesitation regarding how the government will finance infrastructure development
through the PPP initiative. There is a need for a legal framework for pooling of
finances from various sectors (banks, insurance, pension funds).But, at present,
government through IDCOL can provide money (equity or loans) to any
infrastructure investment related funds (GoB, 2009).
Guidelines for Formulation, Appraisal and Approval of Large Projects, 2010;
Guidelines for Formulation, Appraisal and Approval of Medium Projects, 2010;
Guidelines for Formulation, Appraisal and Approval of Small Projects, 2010; is
promulgated under Policy and Strategy for Public-Private Partnership (PPP), 2010
for developing enable environment for PPP project implementation. After adoption
of this new Policy and Strategy for Public-Private Partnership (PPP) in Bangladesh,
the Bangladesh Private Sector Infrastructure Guideline (BPSIG), 2004 is rescinded.
5.8 Policy and Strategy for Public-Private Partnership (PPP), 2010
5.8.1 Office for Public-Private Partnership
For the promotion and efficient handling of PPP projects and Office for PPP shall
be established, through resolution or by legal instrument, as a separate office under
the Prime Minister’s Office. The Office for PPP will be formed as an autonomous
unit having significant autonomy on administrative and financial matters in
discharging its mandated functions (http://www.pppo.gov.bd).
The Office for PPP is the central point of promoting the PPP concept. It supports
line Ministries in identifying, formulating, selecting, contracting and monitoring
implementation of PPP projects. The Office for PPP will also coordinate among
various government and private agencies for fast tracking PPP projects.
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The Office for PPP will consist of officials recruited from public sector and private
sector, selected on a competitive basis, having knowledge and expertise
infrastructure/PPP projects. The office for PPP shall be headed by a Chief
Executive Officer (CEO).The CEO of the Office for PPP shall report directly to the
Hon'ble Prime Minister (http://www.pppo.gov.bd).
The Role of the Office for PPP:
To initiate, develop, formulate PPP projects
To actively promote PPP to various potential investors
To maintain a panel of experts for PPP projects
To conduct pre-feasibility, feasibility studies and prepares relevant bidding
documents, when necessary
To secure annual technical assistance financing for conduction pre-
feasibility, feasibility studies and preparation of relevant biddings
documents
To seek appraisal for VGF for PPP projects
To propose for approval of various laws, rules, regulations, model
documents, guidelines, procedures for general use and use for specific types
of PPP projects
To support line Ministries/implementing agencies in tendering and selection
of investors.
To undertake awareness creation activities and build capacity in line
ministries and implementing agencies on PPP affairs
To monitor PPP projects including the linked components
To facilitate risk mitigation measures for private investment
To maintain an up-to-date internet portal with public access to laws, rules,
regulations, model documents, and short description and scope of negotiated
PPP projects, and secure access to private participants for tracking progress
of processing of specific PPP projects
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5.8.2 Types of Financial Participation of the Government in PPP
Projects
The financial participation of the government in the PPP projects may be in at least
3 forms, depending on the nature of the projects and models of PPP adopted for a
particular type of project. The detailed procedure and guidelines for all forms of
financial participation by the government will be issued and specified by Finance
Division with the approval of the CCEA.
5.8.2.1 Technical Assistance Financing
The technical Assistance Financing is designed for the following purposes:
Pre-feasibility and Feasibility study for projects;
Preparation of RFQ and RFP documents for projects;
Preparation of concession contracts for projects;
PPP related capacity building in the line ministries/implementing agencies
and other relevant agencies;
PPP related awareness building
5.8.2.2 Viability Gap Financing
Viability Gap Financing (VGP) is meant for projects where financial viability is not
ensured but their economic and social viability is high. VGF could be in the form of
capital grants or annuity payment or in both forms. VGF in the form of capital grant
shall be disbursed only after the private sector company has subscribed and
expended the equity contribution required for the project. The VGF is to be
managed by the Finance Division and is for disbursement to the PPP Project
Company, upon request by the line Ministry/implementing agency, as per the terms
of the concession contract.
5.8.2.3 Infrastructure Financing
The infrastructure financing is an arrangement for extending financing facilities for
the PPP projects in the form of debt or equity through specialized financial
institutions such as Bangladesh Infrastructure Finance Fund (BIFF) and
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Infrastructure Development Company Limited (IDCOL).The government may
participate in such financing arrangements through necessary budget provision.
5.8.3 Incentives to Private Investor
The government is keen to provide various fiscal and non-fiscal incentives to the
private investors for launching PPP projects in priority sectors. All incentives in
PPP, including fiscal and monetary incentives are to be considered and granted by
the government, though the appropriate agencies of the government. The incentives
may be in the areas of reduction of cost and protection of return to the private
sector.
(i) Fiscal Incentives
All PPP projects will receive the applicable incentives, provided by the government
from time to time which may, inter alia, include:
Reduced import tax on capital items under PPP projects; and
Tax exemption or reduced tax on profit from operating/managing for a
specific time period.
(ii) Special Incentives
Any specific project may get special unique incentives with the approval of the
CCEA which shall be declared in the RFP documents. Special incentives may be
extended to PPP projects targeted for rural or/ and underprivileged population.
Special incentives may be given to non-resident Bangladeshis (NRBs) to invest in
PPP projects.
5.8.4 Institutional Framework for PPP
According to (PPP Screening Manual, 2013) the institutional framework for
developing strategy, identification, formulation, appraisal, approval, monitoring
and evaluation of PPP projects is presented below:
a) Public-Private Partnership Advisory Council (PPPAC)
b) Cabinet Committee on Economic Affairs (CCEA)
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c) Line Ministry/Implementing agency
d) Finance Division
e) Planning Commission
5.8.5 Unsolicited Proposals
For appraisal and approval of unsolicited proposals, competitive bidding such as
"Bonus System", "Swiss Challenge System" or other appropriate methods shall be
followed where the options and competitiveness of the unsolicited proposals could
be put to open test by inviting competitive proposals.
In the Bonus System, the proponent of the unsolicited proposal is given bonus
points in relation to the evaluation. Swiss Challenge System enables the
government to attract counter proposal on and unsolicited proposal during a
designated period. The original proponent then has the right to counter-match the
most attractive counter proposal.
5.9 Weakness in Previous Framework
PPP initiation was not clear and the procurement process was not well structured.
Absence of consistent procedure to identify, formulates, appraise and approve the
PPP project; lack of clarity on roles and responsibilities of various parties involved
in a PPP arrangement;
5.10 Applicability of PPP
According to (A Brief Guide for Partners: Promoting Public-Private Partnership in
Bangladesh, 2010) any project that generates public goods and services may be
considered under the public-private partnership, if at least one of the following
circumstances exist for the project-
a) The implementation of the project is difficult with the financial resources
or expertise of the government alone;
b) Private investment would increase the quality or level of service or reduce
the time to implement compared to what the government could
accomplish on its own;
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c) There is an opportunity for competition, where possible, among
prospective private investors, which may reduce the cost of providing a
public service;
d) Private investment in public service provides an opportunity for
innovation; and
e) There are no regulatory or legislative restrictions in taking private
investment in the delivery of public service.
5.11 Non-applicability of PPP
The following action/activities will not fall under the PPP (A Brief Guide for
Partners: Promoting Public-Private Partnership in Bangladesh, 2010)
a) Outsourcing of a simple function of a public service;
b) Creating a government owned enterprise (State Owned Company); and
c) Borrowing by government from the private sector.
5.12 Sectorial Coverage of PPP
Any project fulfilling one or more of above-mentioned applicability criteria in any
economic sector, according to the International Standard Industrial Classification
(ISIC) of all Economic Activities, Revision 4, specified by the United Nations, is
eligible for PPP (A Brief Guide for Partners: Promoting Public-Private Partnership
in Bangladesh, 2010). However, the priority sectors are:
1. Exploration, production, transmission, and distribution of oil, gas, coal and
other mineral resources (ISIC 05-09);
2. Oil refinery, and production of LPG (ISIC 19);
3. Production of fertilizer (ISIC 20);
4. Power generation, transmission, distribution and services (ISIC 35);
5. Airports, terminals and related aviation facilities (ISIC 42 and 51);
6. Water supply and distribution, sewerage and drainage, effluent treatment
plans (ISIC 36-39);
7. Land reclamation, dredging of rivers, canals, wetlands, lakes and other
related facilities (ISIC 42);
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8. Highways and expressways including mass-transit, bridges, tunnels,
flyovers, interchanges, city roads, bus terminals, commercial car parking
9. Port development (sea, river and land) including inland container terminals,
inland container depot and other services (ISIC 52);
10. Deep sea port development (ISIC 52);
11. Telecommunication systems, networks and services including information
and communication technology (ICT) (ISIC 60-63);
12. Environmental, industrial and solid waste management projects; (ISIC 38-
39) railway systems, rolling stock, equipment and facilities (ISIC 49);
13. Tourism industry (ISIC 79);
14. Economic zone, industrial estates and parks, city and property development,
including services to support commercial and noncommercial activities
(ISIC 81-82);
15. Social infrastructure e.g. health, education, human resource development,
research and development, and cultural facilities, (ISIC 85-88);
16. e-service delivery to citizens (ISIC 85);
17. Poverty Alleviation Projects (ISIC 84);
a) Pourashava and village water supply (ISIC 36);
b) Remote Area Power Supply Systems (RAPSS), Rural gas supply (ISIC
35);
c) Rural Internet projects (ISIC 61);
d) River passenger terminals /landing stations (ISIC 52);
e) Rural health services and hospital (ISIC 86);
f) Irrigation and other agricultural services (ISIC 36);
g) Other urban, municipal and rural projects that the Government views as
priority areas for development so as to support economic development
activities.
5.13 PPP Project Development Phases and Regulatory Framework in
Bangladesh
In 1996, Government of Bangladesh issued the private sector power generation
policy to facilitate public private partnership (PPP). Later, Bangladesh private
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sector infrastructure guidelines (PSIG) 2004 and private sector power generation
policy (PSPGP) 1996 (revised 2004) has been the major guiding instruments
especially to facilitate private investors for PPP projects. Later the public
procurement act (PPA) 2006 was enacted by the national parliament. Public
procurement act 2006 through section 66, which incorporated concessions
agreement related provision, extended the government’s legal jurisdiction to
formulate independent PPP guidelines. Very recently, policy and strategy for
public-private partnership (PPP Policy, 2010) has been adopted.
Along with regulatory certainty, PPP projects need several consents and approval
including environmental clearance. Department of Environment (DOE) under
Ministry of Environment and Forest is the approving authority for environmental
clearance in Bangladesh. The environmental conservation act 1995 (and
amendment 2000) and the environmental conservation rules 1997 are the guiding
instruments for the project to get environmental approval from DOE. The World
Bank guidelines are generally followed for Environment Impact Assessment
(EIA), Social Impact Assessment (SIA), Rehabilitation Action Plan (RAP), Social
Action Plan (SAP), Environment Management Plan (EMP) etc. for maintaining
“Equator Principles” which facilitate the PPP project in getting finance from banks.
Other relevant policies and laws in conducting PPP business in Bangladesh are:
The Foreign Exchange Regulation Act, 1947
Foreign Private Investment (promotion and protection) Act 1980
The Income Tax Ordinance, 1984
Acquisition and Requisition of Immovable Property Ordinance, 1982
Investment Board Act, 1989
The Companies Act, 1994
Industrial Policy 1999
Arbitration Act, 2001
The life cycle of PPP projects in general may be segregated into seven phases in
terms of role played by the agencies involved in the PPP projects. In different
phases the sector agencies have different roles. The PPP project phases are given in
table 5.1.
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Table 5.1: Major steps of PPP project development in Bangladesh
Steps Activities
Step-I
Pre-Development Project idea and conceptualization
Identification and assessment meetings
and discussions within the agencies
Stage II Feasibility Agency engages consultants
Elicit project ideas
Define the need
Identify and agree major technical and
transaction parameters
Complete feasibility study
Stage III Commercial
Framework and
Procurement
Develop action plan
Prepare commercial framework
Obtain Ministry agreement for Pre-
qualification
Obtain Expressions of Interest and
shortlist
Prepare draft Agreements
Prepare bid documents
Stage IV Evaluation
Develop action plan
Prepare commercial framework
Obtain Ministry agreement for Pre-
qualification
Obtain Expressions of Interest and
shortlist
Prepare draft Agreements
Prepare bid documents
Stage V Negotiation &
Agreement)
Hold bidders conference
Shortlisted bidders prepare bids
Agency receives bids and prepares
evaluation report
approval of successful bidder
Issue LOI to successful bidder
Stage VI Financing Sponsor makes Loan Applications to
commercial lenders Commercial Lenders
perform due diligence
Renegotiations for Lenders Requirements
Loan documents prepared
Financial closure
Stage VII Construction Carry out Contract Administration
functions
Oversee construction by Lenders’
Engineer
Conduct satisfactory completion tests
Commercial Operations Date
Source: (Rashed et al., 2013)
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5.14 Overview of PPP Projects in Bangladesh
PPP development in Bangladesh can be divided in three phases. First generation
PPP started with independent power producers (IPPs) after government approved
the 1996 private sector power generation policy of Bangladesh. The second
generation PPPs was carried out in multiple sectors and it was done after
government approved the Bangladesh private sector infrastructure guidelines
(PSIG) in 2004. The third generation PPPs have been enriched further more as
government approved the PPP budget in 2009. The third generation PPP policy
framework and guidelines have recently been approved by government in June
2010.
The government of Bangladesh (GoB) has showed its strong commitment to PPP,
by allocating a PPP budget that is separated from the traditional development and
revenue budget. In the 2009-2010 fiscal year, US$ 357 million has been allocated
under this PPP budget. The budget has been segregated under three heads - $300m
for loan or equity, $45m for viability gap funding (VGF) and $15m as a centralized
technical assistance fund. In addition, the government has issued a position paper
titled, “Invigorating Investment Initiative through Public-Private Partnerships”, in
June 2010.
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Table 5.2: Sector wise PPP projects implemented in Bangladesh
Sector Project Name Capacity Investment (USD$ million)
Power
CDC Meghnaghat Ltd. 450 MW 300
CDC Haripur Ltd. 360 MW 183
Khulna Power Company Limited 110 MW 110
Haripur EI Paso Barge Mounted Power Plant 115 MW 115
Westmont Baghabari Power Barge 130 MW 16.2
BEPZA Power Plant at CEPZ 40 MW 28
BEPZA Power Plant at DEPZ 35 MW 23
Power Plant at Savar 44 MW 30
Power Plant at Narsingdi 35 MW 23
Power Plant at Comilla 25 MW 17
Small Power Plants (10 to 33 MW) -- 12 stations 230 MW 115
Captive Power Generation (many plants) 1200 MW 500
Telecom
Banglalink 34 123
GrameenPhone 448 500
Pacific Bangladesh Telecom Limited 65 118
TM International (Bangladesh) Ltd. 25 366
Warid Telecom N/A N/A
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Bangladesh Rural Telephone Network 123 150.4
Public Switched Telephone Network (PSTN) Fixed Line
Providers (Many) N/A 172.5
PGCB's Optic Fiber Cable (Phase-I) (Dhk-Ctg) STM 64 1.2
PGCB's Optic Fiber Cable (Phase-II) (Ctg-Cox'bzr) N/A 11
License for International Gateway Services N/A N/A
License for Interconnection Exchange (ICX) Services N/A N/A
License for International Internet Gateway Services N/A N/A
Port
Land Port at Sonamasjid N/A 2.2
Land Port at Banglabandha N/A 1
Land Port at Hili N/A 2.2
Land Port at Birol N/A 0.71
Land Port at Bibirbazar N/A 0.71
Land Port at Teknaf N/A 4
Roads
Gulistan-Jatrabari Flyover Toll road of 7 km from
Gulistan to Jatrabari 108
Dhaka Elevated Expressway N/A N/A
Jamuna Bridge toll management contract 5 N/A
Shah Amanat International Airport 1 N/A
(Sources: Compilation from different documents of IIFC)
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This list covers mostly the projects under the previous PPP institutional and
regulatory structure as adopted in 2004.
In the power sector, after the approval of the 1996 Private Sector Power Generation
Policy, a large number of IPP projects have been taken up and completed in
Bangladesh. Notable amongst them are the 360MW Haripur and 450MW
Meghnaghat combined cycle power plants. At the moment, about 25 IPPs have
been completed or in varying stages of completion, representing an investment of
almost $1 billion. IPPs currently supply about 1/3 of the electricity used in
Bangladesh.
In the telecom sector, private investments approach the $1.5 billion mark, with
world-class mobile companies such as Grameenphone, Banglalink, Aktel, Citycell,
and Warid. Fixed line phones have also been opened up and many operators such
as RanksTel, Dhaka Phone, and OneTeletc are giving commercial service. The
Power Grid Co. has leased out its Dhaka-Cox’s Bazaar optic fiber cable constructed
on its high-voltage transmission lines. The Bangladesh Railway has done the same
for the optic fiber along its railway lines, leasing it with a PPP.
In the ports sector, six land ports have been constructed through PPP, located in
Sonamasjid, Banglabandha, Hili, Birol, Bibirbazar and Teknaf. These are the first
BOT land ports in the world. The tendering process for private operators is
currently underway for the New Mooring Container Terminal, at the Port of
Chittagong.
5.15 Chapter Summery
Chapter five presents emergence of PPP, previous initiatives, background of PPP
initiative and support in Bangladesh. It’s describes the PPP framework, legal basis
for the PPP under the present framework, legal basis for the PPP under the present
framework, policy and strategy for public-private partnership(PPP), 2010
applicability of PPP, non-applicability of PPP. PPP project development phases and
regulatory framework in Bangladesh for implementation of the project. It discusses
with sectorial coverage of PPP, overview of PPP projects in Bangladesh.
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CHAPTER 6
RESULT AND DISCUSSIONS
6.1 Introduction
This chapter presents the responses and analysis conducted for this research. The
results are presented with tabular, graphical and statistical representations. These
responses are from thirty two respondents involved with Public Private Partnership
(PPP) projects. The responses are from the public sector, private sector and
researchers perspectives.
6.2. Selected Characteristics of the Respondents
According to the objectives of the study, data were collected from a sample of 35
respondents who are involved in PPP project. The findings of each selected
characteristics of the respondents are presented separate table along with the
interpretations.
6.2.1 Age
The age of the respondents ranged from 26 to 63 with a mean and standard
deviation of 45.45, and 9.118 respectively. The respondents were classified into
three categories viz. ‘young’, ‘middle aged’ and ‘old’ on the basis of their observed
age. The distribution of the respondents according to their age is presented in
Figure 6.1. The figure 6.1 indicates that the middle aged respondents constitute the
highest proportion (65.71 percent) followed by young aged category (28.57
percent) and old aged category (5.72 percent). Data also indicates that the middle
aged respondents constitute near about half of the interviewees.
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Figure 6.1: Distribution of survey respondents by age
6.2.2 Level of education
The distribution of the respondents according to their level of education has been
presented in figure 6.2.
Figure 6.2: Distribution of survey respondents by education
Figure 6.2 shows that majority respondents were engineering background (29.10
percent) followed by Masters of Science in technical education (23.60 percent),
Young ( 40), 28.57
Middle aged (40 to 60), 65.71
Old (above 60)5.72
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
GeneralGraduate
B. Tech/B.Sc.
Architecture Engineering M. Tech/M.Sc.
LLB
16.40%
5.50%
12.70%
29.10%
23.60%
12.60%
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16.40% general graduate 12.70% Architecture background and 12.60% L.L.B
background
6.2.3 Sector Belongs
Figure 6.3: Distributions of survey respondents by sector
Figure 6.3 shows that more than 38.18% of the respondents had experience with
both public and private sectors as such; most of the responses can be concluded has
been fair. Respondents had the chance to select all positions they have worked
throughout their experience in the industry.
6.2.4 Experience of Respondents in Infrastructure Projects
General Experience of Respondents in PPP Projects
Respondents were asked a number of questions to identify their involvement with
PPP. These questions varied from sectors they have worked with, positions they
hold or have held with companies or agencies, respective years of experience and
PPP projects executed. The respondents who answered the survey belonged to
different sectors and various areas of the construction industry as presented in
Figure 6.4 and 6.4 respectively.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Public sector Private sector Both Academicsector
21.80%
29.09%
38.18%
10.91%
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Figure 6.4: Distributions of survey respondents by infrastructure project
experiences
Figure 6.5: Distributions of survey respondents by PPP project experiences
Figure 6.4 shows the years of experience the respondents have had in the
construction industry. A higher number of the respondents had been in the industry
for at least 11-15 years. Figure 6.5 Years of involvement of Respondents in
different type of PPP projects
5 years orbelow
5–10 years 11–15 years Above 15years
27.30%20%
30.90%
21.80%
Infrastructure Project Experiences of the
Respondents
1–2 Years 3–5 Years 6–8 Years
50.90%
29.10%
20%
PPP Project Experiences
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Type of Infrastructure Project under PPP Involved by the Respondents
Figure 6.6: Distributions of survey respondents by involvement in PPP
infrastructure projects
PPP Delivery Model Used in Infrastructure Projects in Bangladesh
Figure 6.7: PPP model used in infrastructure projects of Bangladesh
Respondents selected the various infrastructure projects they have been associated
with which were procured through PPP. The highest response amongst the
Hospital
Transportation
Land Port development
Water and Sanitary
Power and Energy
Housing
Tourism
ICT services
7.27%
45.45%
12.72%
5.47%
12.72%
9.09%
1.81%
5.47%
Type of PPP Projects Involved by the
Respondents
0.00% 10.00% 20.00% 30.00% 40.00% 50.00%
BOOT/BOO
BOT/DBFO/BOF
Supply Operate and Maintain
Leasing/Affermage
Management Agreement
Joint venture
Concession
41.82%
32.73%
9.09%
7.27%
5.45%
1.82%
1.82%
PPP Delivery Models
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respondents was for transportations projects. Figure 6.5 shows the various projects
respondents have had experience with.
Respondents were asked of PPP procurement methods they are familiar with. As
illustrated in Figure 6.7 most of the respondents responded as being familiar with
BOOT/BOO followed by DBFO/BOT/BOF.
6.2.5 Practice Guidelines on PPP Implementation
In the study respondents were asked if stakeholders had an in house practice
guideline for projects which were to be implemented through PPP. There were
mixed responses to the question as shown in figure 6.8 Just over a quarter of the
respondents had in house practice guidelines. Similar result was observer in case of
Practice Guidelines on PPP Implementation Agyemang, P.F. (2011). This emphasis
the need for stakeholders to establish their own form of guidelines for PPP projects.
These guidelines will help increase the efficiency of PP projects.
Figure 6.8: Practicing guidelines for PPP implementation
Yes27%
No38%
Not sure35%
Practice Guidelines for PPP Implementation
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6.3 Role of PPP in Infrastructure Development
6.3.1 Reasons for Implementing PPP Projects
The survey respondents were asked to rate the importance of nine identified reasons
for implementing PPP projects. The mean score were calculated and ranked in
descending order of importance as shown in Figure 6.9. According to presentation,
top three reasons ranked included:
Shortage of Government funding
Economic development pressure of demanding more facilities
Social pressure of poor public facilities
Private incentive
High quality service required
“Shortage of Government funding” is ranked in the first position by the
respondents. One of the main reasons for the rise of Private Finance Initiative (PFI)
Projects in the United Kingdom was due to financial resources from the private
sector. The PPP/PFI method was first adopted at a time when the British
Government was struggling to provide for public facilities and services (Zhang,
2001).
Figure 6.9: Reasons for implementing PPP projects
4.59
4.42
3.77
3.23
3.12
2.99
2.73
2.33
2.12
0 2 4 6
Shortage of government funding
Economic development pressure of…
Social pressure of poor public facilities
Private incentive
High quality of service required
Inefficiency because of public monopoly…
Avoid public investment restriction
Lack of business and profit generating…
Political pressure
Mean Score
Reasons for Implementing PPP Projects
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By involving the private sector the government was able to continue delivering
public infrastructural a result a heavy emphasis on finance has always been
associated to PPP/PFI projects especially in the early days of implementation.
Since the private sector invests in the infrastructure development, there is no need
for the government to take loans and pay interests. This does not exert excess
pressure on money market, thereby diminishing upward pressure on interest rate
and inflation. Desired growth rate cannot be achieved if the government is unable
to invest in infrastructure development at the appropriate time. Participation of
private sector allows additional and increased production capacity that feeds into
higher growth rate. “Economic development pressure of demanding more facilities”
factor is also considered important considering representative case studies and
which is also ranked by respondents in the second position. Third most important
reason for PPP project is considered by respondents is “Social pressure of poor
public facilities”. Many citizens around the world and especially in transition
economies face an "infrastructure deficit", as evidenced by congested roads,
poorly-maintained transit systems and recreational facilities, deteriorated schools,
hospitals, and water and water treatment systems which are either nonexistent or in
urgent need of repair. Many governments have come to realize that the tax base
alone cannot fund the huge needs for infrastructure. PPPs are one option to meet
this challenge.
The top fourth reason was distinguished as “Private Incentive”. Practitioners round
the world can foresee the advantages of involving the private sector into conducting
public works projects. The private sector can add value to these projects in many
ways such as financially, via experts, innovation, risk sharing and above all
motivation The mean values of the reasons for implementing PPP projects as rated
by respondents ranged from 2.12 to 4.59. This observation has reflected that the
variation in their responses is relatively small (2.47). A value above “3” would
represent that the reason for implementing PPP projects is of importance. Amongst
the reasons for implementing PPP projects four were ranked below 3. These
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reasons for implementing PPP projects were Political pressure, Lack of business
and profit generating skill in public sector, and avoid public investment restriction.
6.3.2 Why PPP in Infrastructure Development?
Infrastructural Investment is essential for the long term economic development of a
country. Key infrastructure assets create additional economic benefits by
supporting urbanization and industrial growth and providing better access to
adjoining countries and stronger trade links. This, in turn, accelerates growth in
GDP per capita and therefore the ability to derive greater financial returns. Sensible
investment has a much higher better chance of paying dividends when
macroeconomic policies are sound, but at the same time, high-return infrastructure
investment is harder to identify and implement in developed countries where most
obvious investments have already been made (Rajon, 2015).
Figure 6.10: Why PPP in infrastructure in development?
Respondents were asked reasons why they will opt for PPP as a procurement
method for infrastructure projects. There were responses for each answer option.
Significant cost savings
18%
PPP encourages innovations and incorporate life-
cycle costs / Realizing Efficiency
Gains20%
Reduced time on project delivery
7%
Accessing Private Capital and Value
for money27%
Better risk allocation/
Improving Risk Allocation
15%
Improved quality of service
13%
Why PPP in Infrastructure Development?
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From the study it was reveal that PPP is essential in infrastructure development for
the following reasons accessing private capital and value for money, encourages
innovations and incorporate lifecycle cost / realizing efficiency gains, significant
cost savings, improving risk allocation and reduced time on projects delivery and
opinion of the respondents presented in above figure. The higher response rate was
received for “Value for Money”. Figure 6.10 shows the reasons for PPP
implementation in infrastructure project.
The Bangladesh government recognizes the need to create infrastructure to bolster
economic development in different sectors. Since the 1990’s, PPP is increasingly
becoming the preferred method of procuring public infrastructure and services
(Grimsey, 2002). PPP provides a mechanism for leveraging the much needed
finance and skills from the private sector (Nyagwachi, 2008; Charles, 2006). PPP
has benefits, most of which have been well captured by authors such as Agyemang,
(2011) and Nyagwachi (2008) to include;
Value-for money;
Potential for delivery, particularly suitable for large scale projects;
Gains from innovation, due to the creativity of the private sector;
Provision of a platform for sector-wide cooperation;
Financing from the private sector;
Capacity building and creation of synergy;
Potential to increase the volume of business;
Potential to attain high efficiency and quality;
Ability to promote ‘competitiveness and fair competition’;
Better risk allocation / transfer;
Whole costing;
Mutual benefits to private and public sectors;
Greater asset utilization.
However, despite the many reported perceived and/or actual benefits, the
implementation success of many PPP projects have been marred by a number of
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allegations including corruption (William and Ghanadan, 2006), lengthy
bureaucratic processes (Lamech and Kazim, 2003) and difficult financing
mechanisms (ADB, 2000). A study by Akampurira, Root and Shaken (2009) found
that the five most hindering factors in the development and implementation of PPP
in the Ugandan electricity sector were; the inability of local institutions to provide
equity financing, numerous requirements to obtain project approval, lengthy project
approval process, delays as a result of lengthy bureaucratic procedures and
resistance from environmental groups.
6.3.3 Factors Contribute Success of PPP
Seventeenth success factors for adopting PPP were rated by the respondents. Figure
6.11 illustrates the relationship of the top five success factors ranked with their
ranking positions .These success factors included:
Favorable legal framework.
Political support.
Appropriate risk allocation and risk sharing.
Strong and good private consortium.
Commitment and responsibility of public and private sectors.
Government involvement by providing guarantee.
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Figure 6.11: Factors contribute success of PPP
According to the responses of respondents, the first most important factor is
marked as “Favorable legal framework”. According to the experienced of the
pioneer country regarding PPP such as Australia and UK, an independent, fair and
efficient legal framework is a key factor for successful PPP project implementation.
A transparent and stable legal framework would help to make the contracts and
agreements bankable. An adequate dispute resolution system would help to ensure
stability in the PPP arrangement. Appropriate governing rules, regulations and
reference manuals related to PPP have been well established in some developed
countries to facilitate the effective application of PPP procurement approach. It is
also evident that for not having favorable legal framework many PPP project was
not successful. Achieving partnership requires strong political support.
Traditionally when there has consensus that an infrastructure project should be
built, governments have allocated the necessary resources to procure it themselves.
When governments look to the private sector for funding this may be a signal of
0 1 2 3 4 5
Favorable legal framework
Political support
Appropriate risk allocation and risk sharing
Strong and good private consortium
Commitment and responsibility of public…
Government involvement by providing…
Good governance
Available financial market
Competitive procurement process
Well organized and committed public agency
Project technical feasibility
Thorough and realist ic assessment of the…
Sound economic policy
Stable macro-economic condition
Transparency procurement process
Multi-benefit objectives
Shared authority between public and…
4.61
4.55
4.34
4.11
4.09
4.01
3.91
3.73
3.71
3.71
3.54
3.43
3.11
2.89
2.76
2.45
2.41
Mean score
Factors Contribute Success of PPP
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lackluster support. However, because of the risks involved, the un-conventionality
of the approach and the need to maintain legitimacy, partnership projects are likely
to require stronger political and government support. “Political support” is ranked
second by the respondents.
The third success factor ranked by the respondents was “Appropriate risk allocation
and risk sharing”. Government would prefer to transfer risks associated with asset
procurement and service delivery to the private sector participants, who are
generally more efficient and experienced in managing them. But the government
should be reasonable to take up risks that are beyond the control of private sector
participants. In all cases, the government should ensure there are measures in place
to manage the risk exposure rather than leaving it open to the private sector.
Likewise before committing to the projects, the private sector participants should
fully understand their risks involved and should be prudent in pricing and managing
the risks appropriately (Zhang, 2005a).
Ranked forth by respondents was “Strong and good private consortium”. The
government in contracting out the PPP project should ensure that the parties in the
private sector consortium are sufficiently competent and financially capable of
taking up the projects. This suggests that private companies should explore other
participant's strength and weaknesses and, were appropriate, join together to form
consortia capable of synergizing and exploiting their individual strengths. Good
relationship among partners is also critical because they all bear relevant risks and
benefits from the co-operation (Abdul-Rashid et al., 2006; Corbett & Smith, 2006).
The fifth success factor ranked by the respondents was “Commitment and
responsibility of public and private sector”. To secure the success of PPP projects,
both the public and private sectors should bring their complementary skills and
commit their best resources to achieve a good relationship. The attractive factor for
successful Public-private partnership rated by respondents as sixth was
“Government involvement with providing guarantee”. Many projects, especially in
transport, require massive private sector investment and here the private sector may
127 | P a g e
not accept one of the various commercial risks for these projects. The public sector
must provide support to a project and lower the risks sufficiently to stimulate the
desired levels of private sector investment. There are various forms of support
which the government can give to a project in order to mitigate the risk to the
private sector. For example, guarantees may be an appropriate form of government
intervention to shield the private sector risks that it cannot anticipate or control.
Indeed, many PPP contracts provide for minimum revenue guarantees that limit the
private sector’s exposure to demand risks.
The mean values for the success factors as rated by respondents ranged from 2.41
to 4.61. This observation has reflected that the variation in their responses is
relatively high (2.20). The finding shows that the respondents rated the success
factors much more inconsistently with larger variation. The results also found that
the success factors with mean values less than “3” are four factors in the bottom
.These success factors were therefore seen to be least important compared to the
others.
6.3.4 Ranking of Negative Factors for Adopting PPP
Twelve negative factors for adopting PPP were rated by the survey respondents.
The mean score were calculated and ranked in descending order of importance as
shown in figure 6.12.
According to depiction, the most important four factors ranked by the respondents
included:
Lengthy delays because of political debate
A great deal of management time spent in contract transaction
Lack of experience and appropriate skill
Lengthy delays in negotiation
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Figure 6.12: Negative factor adopting PPP
Public works project are often delays and complicated by the need for stakeholder
consultation as a result it is not surprising that “Lengthy delays because of political
debate” is the highest negative factor ranked by the respondents. This problem is
well known for causing projects to be held back. The development of a PPP project
requires firms and governments to prepare and evaluate proposals, develop contract
and bidding documents, conduct bidding and negotiate deals and arrange funding.
A great deal of management time is to be spent in contract transaction. The costs
incurred in these processes are called transaction costs which include staff costs,
placement fees and other financing costs and advisory fees for investment bankers,
lawyers an consultant. Transaction costs may range from 1 to 2 percent to well over
10 percent of the project cost. According to survey output “A great deal of
management time spent” factor is rated second position. The concept of partnership
is not always well understood by the bureaucracy, often because of the lack of
capacity and absence of clearly defined rules and regulations. The lack of capacity
in the public sector can be a major obstacle in PPP development in many countries.
Skills of a diverse nature, from project identification and economic evaluation to
financial and risk analysis to contract document preparation, procurement; contract
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
Lengthy delays because of political debate
A great deal of management time spent in…
Lack of experience and appropriate skills
Lengthy delays in negotiation
High participation costs
Confusion over government objectives and…
Very few schemes have actually reached the…
High risk relying on private sector
Higher charge to the direct users
High project costs
Reduce the project accountability
Less employment positions
4.42
4.35
4.12
3.81
3.76
3.33
3.19
3.12
3.05
2.87
2.64
1.82Mean score
Negative Factor Adopting PPP
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negotiation and management are required in administering a PPP programme.
“Lack of experience and appropriate skills” factor is ranked third position as
negative perception. The fourth negative factor as ranked by respondents was
“lengthy delays in negotiation”. From the international experience, this is a typical
factor for PPP projects irrespective of geographical locations. Due to the size and
complexity of PPP projects the procurement process has been known to be lengthy.
For the negative factors rated by respondents the mean values ranged from 2.15 to
4.31. The variation in responses was 2.16. In general the negative factors are rated
higher by the respondents because consideration of country context factors is
deemed to be more challenging. It also implies that respondents are not very much
confident about conducting PPP projects.
6.4 Performance Measurement of Public Sector
6.4.1 Performance of Public Sector in Infrastructure Projects under PPP
Performance measurement is a process or a set of metrics used to quantify and
report the effectiveness and efficiency of the action performed towards
organizations or stakeholders’ objectives (Neely et al., 2005). Strategic objectives
form the foundations of performance measurement (Solomon and Young, 2007).
PPP infrastructure projects have a common strategic objective: the achievement of
best value, which emphasizes efficiency, VfM and performance standards
(Akintoye et al., 2003). This strategic objective covers the issues in relation to
‘public client’s overall strategic plan and mission objectives, private sector’s long-
term development and payoff strategy, the general public’s requirements of quality
public facilities and services’ (Yuan et al., 2009). A vital role is played by the
government in the development as well as management of a PPP project. The
complete project may be fail if the government fails to get involved in an
appropriate manner. Prime role identified for the government are: to establish
enabling legal system, to create favorable investment environment, have a
regulatory framework, act and facilitating as a coordinating and supporting
authority, to select a suitable concessionaire and active participation in project life-
cycle phases. The performance indicators of public sector with their ranked were
presented in the table below-
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Table 6.1 KPIs of public sector with their score for measuring performance of public sector in infrastructure PPP projects
Sl no. KPIs Mean score Standard
deviation
% Respondents
Not at
all Poor Fair Moderate Good
Very
Good
I. Land acquisition for infrastructure 4.01 1.02724 0 3.6 3.6 18.2 36.4 38.2
II. Exemption of taxes and import
duties 3.45 0.95874 0 5.5 9.1 27.3 50.9 7.3
III. Linked project 3.34 0.77503 0 3.6 5.5 45.5 43.6 1.8
IV. Socio-economic issues 3.14 0.91121 0 5.5 14.5 43.6 32.7 3.6
V. Legal Dispute 2.98 0.84964 0 5.5 16.4 52.7 23.6 1.8
VI.
Fulfillment of agreement conditions
(production, Commercial Operation
Date (COD)
2.69 1.03735 7.3 7.3 7.3 69.1 7.3 1.8
VII. On time activities (Proposal to
implementation) 2.67 0.87924 3.6 3.6 23.6 60.0 7.3 1.8
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VIII. Project Monitoring and Quality
control 2.60 1.16428 5.5 14.5 14.5 49.1 12.7 3.6
IX. Procurement plan or procurement
system 2.54 1.18350 9.1 9.1 18.2 47.3 14.5 1.8
X.
Risk Shearing (Market and revenue
risks, Operating risks,
Environmental risks, Political risks,
Public acceptance risks)
2.14 1.09575 10.9 14.5 29.1 40.0 5.5 0
XI. Operation and maintenance
monitoring 1.85 0.80319 5.5 23.6 50.9 20.0 0 0
XII. Financial incentive for private sector 1.83 0.78796 7.3 18.2 58.2 16.4 0 0
XIII. Cost sharing 1.67 0.80193 5.5 40.0 40.0 14.5 0 0
XIV. Environmental relationship and
communications 1.63 0.92405 25.5 43.6 18.2 12.7 0 0
XV. Satisfaction level of private sector 1.12 0.94388 23.6 50.9 18.2 3.6 3.6 0
XVI. Coordination 1.09 0.90825 25.5 47.3 23.6 3.6 0 0
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The study sought to find out whether there were the performances of public sector
of infrastructure projects under PPP in Bangladesh. From the study findings it is
clear that majority 38.2% of the respondents rate the defined land acquisition
performance for infrastructure establishment before project commencement as very
good while one respondent each rated them as good, moderate, fair and poor. The
researcher wanted to find out the opinion of the respondents on the exemption of
taxes and import duties, linked project and socioeconomic issues management as
public sector performance monitoring.
The findings indicate that most of the respondents felt that the exemption of taxes
and import duties, linked project and socioeconomic issues management as public
sector performance was moderate followed by good fair as well as poor presented
into the table 6.1. The researcher can conclude that in public - private partnerships
in Bangladesh there is some form of better performance of public sector in
infrastructure project under PPP. According to the table 6.1 above fifty percent of
the respondents opined that performances of public sector on legal dispute,
fulfillment of agreement conditions (production, commercial operation date),
project monitoring and quality control, procurement plan or procurement system
was medium followed by fair and poor.
The study also sought to find out whether the public sector of Bangladesh has any
arrangements for risk sharing. The findings indicate that all respondents agreed that
there was some form of arrangements for risk sharing in in infrastructure project
under public-private partnership. Forty percent of the respondents agreed that risk
sharing performance of public sector was moderate followed by 29.1% fair and
14.5% poor. The researcher wanted to find out the performance of public sector on
operation and maintenance, financial incentive for private sector, cost sharing with
partners. The study findings indicate that most of the respondents agreed that the
operation and maintenance, financial incentive for private sector, cost sharing with
partners was fair and poorly manage whereas above quarter percent of the
respondents rated the arrangement as medium. The researcher sought to evaluate
the extent of public sector performances in case of environmental relationship and
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communications with partners, satisfaction level of private sector, coordination
among the partners. The findings indicate that near about 50% of the respondents
agree that public sector has a fair performance in environmental relationship and
communications with partners, satisfaction level of private sector, coordination
among the partners followed by poor and medium as illustrated into table 6.1.
6.4.2 Ranking Performance Indicators of Public Sector in Infrastructure
PPP
The survey respondents were asked to rate the importance of sixteen identified key
performance indicators (KPIs) of public sector for implementing infrastructure PPP
projects. The mean score were calculated and ranked in ascending order of
importance as shown in Figure 6.13. According to the figure 6.13, last three main
weak performances ranked included:
Coordination
Satisfaction level of private sector
Environmental relationship and communications
Lack of coordination between stakeholders has been reported as the main reason for
project failures of PPP projects in several instances. As such, capturing and
addressing of stakeholder inputs is crucial to the success of the PPP projects (El-
Gohary et al., 2006). Therefore, the 16 indicators in figure 6.13 are selected as
indicators to present the performance of public sector in infrastructure PPP projects.
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Figure 6.13: Ranking the performance of public sector in infrastructure projects
under PPP
The study shows that the weak performances of public sector especially in terms of
public infrastructure and delivering essential services are coordination, satisfaction
level of private sector and environmental relationship and communications.
Clearly, the attractiveness of PPPs in addressing this problem is fully recognized by
stakeholders, which drive the private sector to satisfy public client to improve
social welfare (e.g. price, environment, convenience, opportunity for job etc.) to
make society happy (Li et al.,2005b).
General contractors are continuously involved in a process of transforming inputs
(i.e. materials, labor, and capital) into outputs (e.g. constructed facility), during
which the private sectors are accompanied by a number of other firms such as
subcontractors, material vendors, and equipment dealers. Kale & Arditi (2001)
reveal that maintaining a relationship of high quality with subcontractors is
positively and strongly associated with the perceived performance. In the PPP
Land acquisition for infrastructure
Exemption of taxes and import duties
Linked project
Socio-economic issues
Legal dispute
Fulfillment of agreement conditions
On time activities (Proposal to implementation)
Project Monitoring and Quality control
Procurement plan or procurement system
Risk Shearing
Operation and maintenance
Financial incentive for private sector
Cost sharing
Environmental relationship and communications
Satisfaction level of private sector
Coordination
4.01
3.45
3.34
3.14
2.98
2.69
2.67
2.6
2.54
2.14
1.85
1.83
1.67
1.63
1.12
1.09
Mean score
Key Performance Indicators of Public Sector
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context, this relationship is extremely more important than in traditional
construction methods (Kumaraswamy & Anvuur, 2008). Therefore, a growing body
of research supports the view that contractual parties are more willing to cooperate
and to build good relationships on longer-term contracts in PPPs. On the other
hand, good relationship in project team (SPV) is mainly used to evaluate team
management, interior organization structure, and organizational culture, which is
expressed by team value and team attitude (Kumaraswamy & Anvuur, 2008).
6.5 Measuring Service Quality and Cost of Providing Services of
Infrastructure Projects under PPP
6.5. 1 Cost of Providing Services in Infrastructure Project under PPP
To ensure customer satisfaction is the main rewards from partner with private
sector through improvements of program performance, cost-efficiencies, better
service provisions and appropriate allocation of risks and responsibilities. In this
study majority of the respondents 78% opined that cost of the providing services
were increased under PPP arrangement than traditional method.
Figure 6.14: Service qualities of infrastructure projects under PPP
Increase78%
Decrease7%
No comments15%
Cost of Services
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6.5. 2 Service Quality of Infrastructure PPP Projects
Generally one would expect better access to quality service in PPP projects, since
they can draw on previous experience with the non-operational, state run PPP
infrastructure project.
Figure 6.15: Service qualities of infrastructure projects under PPP
Interestingly, it was observed that 22% of the respondents were rate the services
quality as excellent means they are fully satisfied with the services and 53% rate as
good means they are also satisfied with the services of PPP infrastructure project in
Bangladesh. Advances in the field of customer satisfaction have been significant.
Literature reviews showed that project implemented under PPP improved quality of
services. Experience suggests that the quality of service achieved under a PPP is
often better than that achieved by other traditional procurement (United Nations
Development Program, 2010). This may reflect the better integration of services
with supporting assets, the introduction of innovation in service delivery, or the
performance incentives and penalties typically included within a PPP contract.
With most PPP projects, the private sector contractor obtains full payment if the
required service standards are met throughout the project. Other benefits of PPP
include: maximizing the use of each sector’s strength; reduction in public capital
investment; better environmental compliance; shared resources between both
sectors and mutual rewards for both sectors. Although cost of providing services
Service quality0%
Excellent22%
Good53%
Fair14%
Poor4%
No comments7%
Service Quality
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under PPP arrangement are increase but customer are satisfied herewith paid
service.
6.6 Environmental Consideration Infrastructure Projects under PPP
It is of extreme importance that PPP projects are implemented based on
environmental regulations and restrictions. Such projects that meet environmental
regulations can be referred to as green PPP projects. These regulations are most
often enforced by the public sector and some private agencies working as nonprofit
organizations.
6.6.1 Environmental Approvals for PPP projects
Respondents were asked whether PPP projects end up meeting the minimum
requirements for environmental approvals. Respondents were simply asked to
answer “Yes” or “No” to the question: “Do PPP Projects end up meeting the
minimum requirement to obtain environmental approval”. Responses are illustrated
in figure 6.16.
Figure 6.16: Do PPP projects end up meeting minimum requirement for
environmental approval?
Yes95%
No5%
Do PPP Projects end up Meeting Minimum Requirement for Environmental Approval?
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6.6.2 Environmental Impact Assessment (EIA) for Infrastructure PPP
Projects
Environmental Impact Assessment (EIA) is a tool used to identify the
environmental, social and economic impacts of a project prior to decision making.
The process leads to the selection of the projects on the principle of sustainable
development, so that the adverse effects of the new developments are mitigated
through proactive and rational decisions making.
Figure 6.17: Environmental Impact Assessment (EIA) for infrastructure
Over the years, EIA has not been practiced holistically in the developing countries
and particularly in South Asian Nations. However in the last few years
Governments, environmentalists, researchers, media and communities of these
countries have formulated sufficient legislative and institutional frame work for the
EIA. The findings indicate that 65% of the respondents had clearly opined that EIA
for the infrastructure project under PPP was conducted before establishing the
projects where as 20% had no comments and 15% respondents oppose the
statement.
No comment20%
No15%
Yes65%
Environmental Impact Assessment (EIA)
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6.6.3 Do These Steps of EIA being followed before Starting this
Infrastructure Project?
The EIA process of Bangladesh starts with the screening of the projects. This is
carried out on the basis of the screening list included in the Environment
Conservation Act, 1995 and Environment Conservation Rules, 1997. A project that
requires a detailed EIA undergoes an IEE at first. Moreover, an IEE is of no use in
the decision-making process where an EIA is needed. The site clearance order
allows the proponent to undertake project-site development and to build
infrastructures. It affects the importance of EIA for decision-making and also
ensures that the project is going ahead, because with the site clearance order the
proponent is actually going to start the activity.
Table 6.2: Steps of EIA being followed by before starting infrastructure project
Sl. Procedure Percent Respondent
Not at all Partially
followed
Properly
followed
1 Procedures for update and
review of environmental
management instruments
34.55 49.09 16.36
2 Compliance audits 34.6 58.2 7.3
3 Provision of audits to Defense;
and 34.55 60.00 5.45
4 Procedures for notification of
Defense and relevant authorities
in the event of environmental
incidents.
41.82 52.73 5.45
At this stage, an EIA can only justify a project and delay the project operation with
an environmental clearance. It is clear that the present EIA process in Bangladesh
aims to develop some of environmental management activities and mitigation
140 | P a g e
measures for development activities. The EIA processes are under goes with some
steps. In the study it was found that most of the respondents near 50% opined that
the steps of EIA being partially followed before starting infrastructure project under
PPP and only few respondents stated that the procedure and steps of EIA have
been properly followed as illustrated into the table 6.2. Above quarter percent of
the respondents opined that the procedure and steps of EIA are not followed at all.
EIA has been practiced in Bangladesh since the late 1980s but it is through the
enactment of the Environment Conservation Act, 1995 and the Environment
Conservation Rules, 1997 EIA gained formal status in the country. Introduction in
order for EIA to be effective, it has to be intertwined with the country's legal
system and backed by a clear set of administrative protocols with sufficient
institutional capacity. With a decent set of sectorial guidelines for conducting
environmental assessment, a sound legal basis and established institutional
framework for EIA review and approval, Bangladesh has a systematic mechanism
in place for examining the environmental consequences of development initiatives.
But evidence suggests that EIA has not yet evolved satisfactorily in Bangladesh in
several aspects (Kabir & Momtaz, 2013; Momtaz 2002). It is a widely speculated
that in Bangladesh EIA still remains an instrument for project approval and not a
tool that can promote the environmental sustainability of the project.
6.6.4 Environmental Management and Monitoring Plan in PPP Projects
for Sustainable Infrastructure Development
Figure 6.18: Are there a specific Environmental Management Plan (EMP)?
Yes73%
No24%
No comments3%
Are there a specific Environmental management plan (EMP)?
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Respondents were asked if their company or agency had specific environmental
management plan (EMP) for projects which were to be implemented through PPP.
There were mixed responses to the question as shown in Figure 6.18. More than
half of the respondents (73%) stated that PPP infrastructure projects have specific
environmental management plan (EMP). This emphasis that need for companies
and agencies to follow specific environmental management plan (EMP) for
implementing PPP projects. These EMP will help increase the efficiency and
sustainability of PPP projects.
Figure 6.19: Did the specific environmental plan follow properly?
Respondents were asked either their organization follow environmental plan
properly. As illustrated in figure 6.19 more than half of the respondents responded
as being partially followed and 20% responded as properly followed.
Not at all16%
Partially followed51%
Properly followed20%
Not sure13%
Did the specific environmental plan follow properly?
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Figure 6.20: Do the PPP Projects have any Environmental Monitoring Plan?
The survey respondents were asked of their opinion on environmental monitoring
plan either their organization follows or not. Respondents were to state the
responses are illustrated in Figure 6.20.
There are some shortcomings in EIA system in practice infrastructure projects.
Despite the many shortcomings, the basic structure of the Bangladesh EIA system
can be considered to be sound. It is important for the country to improve on these
limitations with an aim to building a robust EIA system for sustainable
development. Although a rigorous administrative procedure of submission and
approval of necessary environmental documents are in place, evidence suggests
that EIA has not yet evolved satisfactorily in Bangladesh.
6.6.5 Environmental Factors Adopting the Infrastructure Project under
PPP Arrangement
Yes53%No
27%
Not sure20%
Do the PPP project have any environmental monitoring plan?
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Table 6.3: Environmental aspects adopting in infrastructure project under PPP arrangement
Sl. No Statements
Percent respondent opinion
Not At
All Poor Fair Moderate Good
Very
good
1 Do the projects reduce air, water, soil and all other forms of
pollution?
30.91 47.27 9.09 5.45 3.64 3.64
2 Do the projects promote and use environment-friendly
technologies?
12.73 74.55 5.45 3.64 1.82 1.82
2 Do the projects provide for the stewardship of ecosystems? 61.82 23.64 5.45 5.45 3.64 0
3 Do the projects contribute to ecosystem and biodiversity
management and conservation?
60.00 25.45 3.64 3.64 3.64 3.64
7 Do the projects mitigate greenhouse gas emissions during
construction and maintenances?
5.45 5.45 70.9
1
9.09 7.27 1.82
8 Do the projects use of resilient technologies against natural
disaster like earthquakes, floods, droughts and extreme heat etc?
3.64 5.45 27.2
7
43.64 12.73 7.27
9 Do the projects consider climate change risks in its design,
maintenance and operation?
12.73 10.91 20.0
0
36.36 14.55 5.45
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The survey respondents were also asked to rate environmental aspects adopting in
infrastructure project under PPP arrangement illustrate in the table 6.3. More than
50% of the respondent stated that infrastructure projects poorly reduce air, water,
soil and all other forms of pollution as well as poorly promote and use
environment-friendly technologies. On the other hand the projects not at all provide
for the stewardship (responsible use and protection of the natural environment
through conservation and sustainable practices) of ecosystems and biodiversity
conservation. Most of the respondents rate other environmental considerations as
fair followed by poor.
6.7 Barriers of PPP Projects
Despite the huge recognition of PPPs and its increasing usage in infrastructure
development, the experience of both the public and private sector with PPP has not
always been positive (Kwak et al., 2009). A number of PPP projects are either held
up or terminated particularly in developing countries. This has triggered previous
researchers to conduct studies on barriers to PPPs implementation across the globe.
Table 6.4 reveals a selection of previous researchers’ findings on barriers to PPPs
implementation.
Table 6.4: Examples of identified barriers to PPPs implementation by few previous
research studies
S/n Authors and Year Findings
i Li et al., (2005) Lack of suitable skills and experience;
lengthy bidding and negotiation process; lack
of competition; and lack of well-established
legal framework.
ii Zhang (2005) Social, political, and legal risks;
unfavourable economic and commercial
conditions; inefficient public procurement
frameworks; lack of mature financing
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S/n Authors and Year Findings
engineering techniques; public sector related
problems (e.g. inexperienced government
and lack of understanding of PPPs); and
private sector related problems (e.g. most
people, including investment banks still
prefer traditional procurement routes).
iii Chan et al., (2006) Lack of suitable skills and experience; and
lengthy bidding and negotiation process.
iv El-Gohary et al., (2006) Public opposition.
v Corbett & Smith (2006) Lack of competition; lack of suitable skills
and experience; lack of innovations in
design; and lack of flexibility.
vi Chan et al., (2010) Lengthy delays in negotiation; lack of
experience and appropriate skills; and
lengthy delays because of political debate.
vii KPMG (2010) Barrier to competition and procurement
inefficiencies.
However, none of the previous researchers had fully categorized barriers to PPPs
implementation by using PEST (Political, Economic, Social, and Technological)
approach or its variants, such as SLEEPT (Social, Legal, Economic,
Environmental, Political, and Technological), PESTLE (Political, Economic,
Social, Technological, Legal, and Environmental) among others. It was only
Zhang, (2005) that partially categorized his findings as social, political, and legal
risks among others as a barrier to PPPs implementation. Thus, it is important to
categorize barriers to PPPs implementation by using SLEEPT approach, because it
is a very useful and widely used tool that helps to understand wider business
environment, and enables business leaders worldwide to build their vision of the
future.
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Barriers of PPP Projects in Infrastructure Development of Bangladesh
A comprehensive literature review, documentary evidence and field survey enabled
the identification of thirty five barriers were identified to implementation of
infrastructure projects under PPPs in Bangladesh.
Figure 6.21: Percentage representation of categorized barriers
The identified barriers were categorized by using SLEEPT approach (Social, Legal,
Economic, Environmental, Political, and Technological). Figure 7.21 reveals that
economic barrier has the higher percentage. This shows that economic barrier is the
most important barrier affecting infrastructure development under PPP that
implemented in Bangladesh followed by technological barrier, social barrier,
political barrier, legal barrier and environmental barrier respectively. In this study a
total 32 identified barriers have been found in infrastructure development under
PPP. Thus, the identified barriers were categorized as follows:
Social Barriers:
The study revealed social barriers including public opposition, cultural
impediments, societal discontent against the private sector, public resentment due
to tariff increases, lack of confidence and mistrust in PPP among others which is
12.50%15.00%
22.50%
12.50%
17.50%20.00%
Barriers of PPP
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similar with Gunnigan & Rajput (2010) that social and cultural norms within a
nation are significantly alter the behaviors of people, and ultimately affecting the
PPP operation and structures, and public opposition has led to many cancellations,
both before and after the concession award. The finding is in contrast with Gibson
and Davies, (2008) that identified internal partnership relationships in mature
economies. Therefore, it becomes necessary that all the stakeholders' for instance
primary stakeholders in PPP to identify the public interest before embarking on any
PPP project implementation in Bangladesh.
Legal Barriers:
Findings of the research identified enacting PPP Law, regulations and other
guidelines to better specify the outputs, disqualify incompetent tenderers and
ensure transparent procurement, poor regulatory frameworks and enforcement,
weak institutional capacity and PPP strategy among others as legal barriers to PPP
implementation in less mature economies. This finding is similar with Li et al.,
(2005) that identified lack of well-established legal framework as one of barriers to
PPPs project implementation. This indicates that the governments of Bangladesh
undertake PPPs without overall PPP policies, which leads to ill-defined goals and a
greater likelihood of problems with the projects implementation.
Economic Barriers:
The general perceptions of other developing countries as high risk economies by
foreign investors, inability of local institutions to provide long term financing,
difficulty in obtaining foreign exchange/foreign exchange risk, access to
international commercial finance, fixed rate availability and overall interest rate
payable, foreign currency risk and lack of hedging instruments, inadequate
domestic capital markets among others were identified as economic barriers to
PPPs implementation in Bangladesh. This finding is in contrast with Corbett &
Smith (2006) and Chan et al., (2006) that identified high transaction costs and high
bidding costs as barriers to PPPs project implementation. Therefore, it necessary
148 | P a g e
for governments of Bangladesh to create stable economic and financial supports
with a view to inducing confidence in both local and foreign PPP investors.
Environmental Barriers:
The research identified environmental barriers as follows; land acquisition
problems, lack of coordination between national and regional governments, lack of
transparency and accountability, accusations of corruption, corrupt tendencies
among others and monitoring and evaluation of PPP projects. The finding is in
contrast with Li et al., (2005) and KPMG (2010) that identified lack of competition
as barrier to PPPs in mature economies. Thus, it becomes imperative for
governments of Bangladesh to create an enabling environment and favorable
investment to make PPP attractive.
Political Barriers:
Lengthy delays due to political debate, political reneging, politicization of the
concessions, and lack of strong political commitment for PPPs among others were
identified as political barriers which is similar with Kwak et al., (2009) that
inadequate involvement and incapability of governments to manage PPP projects
lead to project failures in Bangladesh. The finding is in contrast with Gibson and
Davies, (2008) that identified local political opposition as a barrier to PPPs in
mature economies.
Technological Barriers:
The study identified technological barriers as lack of experience and expertise in
public sector and private investors, non-availability of model concession
agreements, inconsistent risk assessment and management, shortage of
professionals to handle infrastructure PPP projects, provision of incomprehensive
up-front project information by public sector among others. These findings are
similar with Li et al., (2005) and Maralinga (2010) that lack of suitable skills and
experience, and lack of project preparation capacity on the part of the public sector
149 | P a g e
among others are barriers to PPPs project implementation. This shows that
Bangladesh rely on mature economies professionals’ expertise and skills to develop
and structure of PPPs projects. However, the research identified more barriers of
infrastructure PPPs project implementation in Bangladesh which is in contrast with
KPMG (2010) that identified competition and procurement inefficiencies as barrier
to PPPs in Australia.
6.8 Chapter Summery
Indicators related to performance measurement of public sector in infrastructure
project under PPP and are qualitative in nature. The area to which focus include:
reasons for implementing PPP, why PPP in infrastructure development,
performance of public sector, cost and quality of providing services, environmental
consideration in project selection and implementing project process, and post-
selection process. According to scale, performances of public sector are considered
as good if the mean score is 3 or above. Considering all indicators (16 KPIs), only 4
indicators is scored equal or above 3. Rest of indicators is scored below 3 which
mean that performances of public sector in infrastructure project under PPP is
moderate good. Meanwhile 3 indicators is scored below 2 which means that
performance of public sector in terms of coordination, satisfaction level of private
sector and environmental relationship and communications are fair. Although cost
of providing services under PPP arrangement are increase but customer are
satisfied herewith paid service. A rigorous administrative procedure of submission
and approval of necessary environmental documents are in place during project
approval, the study shows that EIA has not yet evolved satisfactorily in Bangladesh
and environmental aspects need to be considered are partially followed. In this
chapter also discuss that economic barrier is the most important barrier affecting
infrastructure development under PPP that implemented in Bangladesh followed by
technological barrier, social barrier, political barrier, legal barrier and
environmental barrier respectively.
150 | P a g e
CHAPTER 7
CONCLUSIONS & RECOMMENDATIONS
7.1 Introduction
This chapter concludes the research study. The major findings from this study are
analyzed and triangulated according to the data collection methods adopted. It also
includes the recommendations for future research for the same subject area.
7.2 Major Findings:
7.2.1 Reasons for Implementing PPP Projects
The reasons for implementing PPP have been discussed by many researchers and
which is summarized in Chapter 3. From literature it is found that PPP is a win-
win solution and a number of benefits to the general public and government are
recognized: Relief of financial burden; better services to the public; encouragement
of growth; better focus on social issues; better allocation of risk; technology
transfer.
Chapter 6 presented the results found from empirical questionnaire survey.
Reasons for implementing PPP was ranked by the respondents included: shortage
of government funding, economic development pressure of demanding more
facilities, social pressure of poor public facilities, private incentive, and high
quality service required.
7.2.2 Why PPP in Infrastructure in Development?
From literature Chapter 3 it is found that one of the main reasons that projects are
procured by PPP is to enhance Value for money by inviting the private sector to
handle public works projects.
From the study in Chapter 6 it is reveal that PPP is essential in infrastructure
development for the following reasons accessing private capital and value for
money, encourages innovations and incorporate life-cycle cost and realizing
151 | P a g e
efficiency gains, significant cost savings, improving risk allocation and reduced
time on delivery and opinion of the respondents presented in above figure. The
higher response rate was received for “Value for Money”.
7.2.3 Factors Contribute Success of PPP
From in-depth international literature review, a list of critical success factors are
represented in Chapter 3. Most of the researcher identified as most common
critical success factor is included: an appropriately designed legal framework; a
strong central structure to promote and guide PPP project implementation;
measurable output performance and transparency; allocation of risk appropriately;
strong and good private consortium.
Output of survey conducted based on empirical questionnaire survey is presented in
Chapter 6. Seventeenth success factors for adopting PPP is rated by the
respondents and the top five success factors are identified .These success factors
included: favorable legal framework; political support; appropriate risk allocation
and risk sharing; strong and good private consortium; commitment and
responsibility of public and private sectors and government involvement by
providing guarantee.
7.2.4 Negative Factors for Adopting PPP
From literature review, a summary of negative factors of PPP is presented. Findings
are presented in Chapter 3. Negative factors are identified are: lengthy bidding
process; high bidding cost; cost over-run; small number of bidder; excessive risks.
Top three negative factors identified from the same empirical questionnaire survey
presented in Chapter 6. Top negative factors are distinguished from the analysis of
the perceptions of the respondents are included: length delays because of political
debate; great deal of management time spent in contract transaction; lack of
experience and appropriate skills and lengthy delays in negotiation.
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7.2.5 Performance of Public Sector in Infrastructure Project
From literature review, a summary of performances of public sector in world
perspective of PPP is presented. Findings are presented in Chapter 3. Good
performances of public sector are identified are: stable political environment,
supporting legal and regulatory framework, ensuring fair and transparent bidding
process, providing requisite assistance and grantee etc.
Output of survey conducted based on empirical questionnaire survey is presented in
Chapter 6. Sixteenth performance indicators of public sector are rated by the
respondents and the top five success and last three main weak performances are
identified. The good performances of public sector in infrastructure projects are
land acquisition for infrastructure; exemption of taxes and import duties; linked
project; addressing socio-economic issues and legal dispute. On the other hand the
poor performances of public sector are coordination; satisfaction level of private
sector; environmental relationship and communications; cost sharing, financial
incentive for private sector and operation and maintenance monitoring of PPP
projects.
7.2.6 Service Quality of Infrastructure PPP Projects
Literature reviews Chapter 3 showed that PPP improved quality of service.
Experience suggests that the quality of service achieved under a PPP is often better
than that achieved by other traditional procurement. This may reflect the better
integration of services with supporting assets, the introduction of innovation in
service delivery, or the performance incentives and penalties typically included
within a PPP contract. With most PPP projects, full payment to the private sector
contractor only occurs if the required service standards are met throughout the
project. Other benefits of PPP include: maximizing the use of each sector’s
strength; reduction in public capital investment; better environmental compliance;
shared resources between both sectors and mutual rewards for both sectors.
Output of survey conducted based on empirical questionnaire survey is presented in
Chapter 6. Interestingly, it is observed that 22% of the respondents were rate the
services quality as excellent means they are fully satisfied with the services and
153 | P a g e
53% rate as good means they are also satisfied with the services of PPP
infrastructure project in Bangladesh.
7.2.7 Cost of Providing Services in Infrastructure Project under PPP
From literature review Chapter 3, it is concluded that to ensure customer
satisfaction the main rewards from partner with the private sector are improvements
of program performance, cost-efficiencies, better service provisions and appropriate
allocation of risks and responsibilities increases the cost of providing services.
From the study in Chapter 6 it is reveal that cost of providing service under PPP
projects were increased under PPP arrangement than traditional method.
7.2.8 Environmental Consideration Infrastructure Projects under PPP
Literature reviews Chapter 3 showed that the construction and operation of
infrastructure generally pose risks to local environment, which will result in
environmental damage if not adequately mitigated or compensated but the
infrastructure-environment nexus addresses the challenge of meeting the demand
for infrastructure services while maintaining or improving the quality of the
environment under PPP projects.
From the study in Chapter 6 it is reveal that the findings indicate that 65% of the
respondents had clearly opined that EIA for the infrastructure project under PPP
was conducted before establishing the projects where as 20% had no comments and
15% respondents oppose the statement. Although a rigorous administrative
procedure of submission and approval of necessary environmental documents are in
place, evidence suggests that EIA has not yet evolved satisfactorily in Bangladesh.
In most cases EIA being partially followed before starting infrastructure project
under PPP. In all infrastructure PP projects agencies have specific Environmental
Management Plan (EMP) to follow but this also being partially follows. If these
EMP will properly follows this will help in increasing the efficiency and
sustainability of PPP projects.
154 | P a g e
7.2.9 Barriers of PPP Projects in Infrastructure Development of
Bangladesh
From literature review Chapter 3, it is found that social, political, and legal risks;
unfavorable economic and commercial conditions; inefficient public procurement
frameworks; lack of mature financing engineering techniques; public sector related
problems (e.g. inexperienced government and lack of understanding of PPPs); and
private sector related problems (e.g. most people, including investment banks still
prefer traditional procurement routes); public opposition; lack of competition; lack
of suitable skills and experience; lack of innovations in design; and lack of
flexibility; lengthy delays in negotiation; lack of experience and appropriate skills;
and lengthy delays because of political debate are the common barriers of
infrastructure PPP projects.
Understanding and enhancing knowledge of PPPs continue to be a matter of
significance and importance. Output of survey conducted based on empirical
questionnaire survey is presented in Chapter 6 and it is noted that this study also
identified six barriers to PPPs implementation in Bangladesh. This includes; social
barriers, legal barriers, economic barriers, environmental barriers, political barriers,
and technological barriers. However, the study identified economic barrier (high
risk economies by foreign investors, inability of local institutions to provide long
term financing, difficulty in obtaining foreign exchange/foreign exchange risk,
access to international commercial finance, fixed rate availability and overall
interest rate payable, foreign currency risk and lack of hedging instruments,
inadequate domestic capital markets among others) followed by technological
barrier (lack of experience and expertise in public sector and private investors,
inconsistent risk assessment and management, shortage of professionals to handle
infrastructure PPP projects, provision of incomprehensive up-front project
information by public sector among others), political barrier (Political reneging,
politicization of the concessions, lengthy delays due to political debate, lack of
strong political commitment for PPPs among others) and legal barrier (enacting
PPP Law, regulations and other guidelines to better specify the outputs, disqualify
incompetent tenderers, and ensure transparent procurement, weak/poor enabling
policies, poor regulatory frameworks and enforcement, weak institutional capacity
155 | P a g e
and PPPs strategy, weak judicial framework/weak judiciary for resolving PPP
disputes among others) respectively as most significant barriers to PPPs project
implementation in Bangladesh, while social (public opposition, cultural
impediments, societal discontent against the private sector, public resentment due
to tariff increases, lack of confidence and mistrust in PPPs among others) and
environmental barrier (land acquisition problems, lack of coordination between
national and regional governments, lack of transparency and accountability,
accusations of corruption, corrupt tendencies among others and monitoring and
evaluation of PPP projects) was the least. The study concludes that there are more
barriers to PPPs project implementation in Bangladesh. This has made the PPPs
project implementation in our countries to be characterized with controversies,
cancellations, delays, and renegotiations.
7.3 Conclusion
In this study the area to which focus include: reasons for implementing PPP, why
PPP in infrastructure development, performance of public sector, cost and quality
of providing services, environmental consideration in project selection and
implementing project process, and post-selection process. Reasons for
implementing PPP was ranked by the respondents included: shortage of
government funding, economic development pressure of demanding more facilities,
social pressure of poor public facilities, private incentive, and high quality service
required. Key Performance Indicators related to performance measurement of
public sector in infrastructure project under PPP and are qualitative in nature.
According to scale, performances of public sector are considered as good if the
mean score is 3 or above. Considering all indicators (16 KPIs), only 4 indicators is
scored equal or above 3. Rest of indicators is scored below 3 which mean that
performances of public sector in infrastructure project under PPP is moderate good.
Meanwhile 3 indicators is scored below 2 which means that performance of public
sector in terms of coordination, satisfaction level of private sector and
environmental relationship and communications are fair. Although cost of
providing services under PPP arrangement are increase but customer are satisfied
herewith paid service. A rigorous administrative procedure of submission and
approval of necessary environmental documents are in place during project
156 | P a g e
approval, the study shows that EIA has not yet evolved satisfactorily in Bangladesh
and environmental aspects need to be considered are partially followed. In this
chapter also discuss that economic barrier is the most important barrier affecting
infrastructure development under PPP that implemented in Bangladesh followed by
technological barrier, social barrier, political barrier, legal barrier and
environmental barrier respectively.
7.4 Recommendations
It is strongly suggested to policy and decision makers to support and facilitate more
use of the PPPs concept for better public service delivery improving the
performance of public sector. They could also initiate, develop, support and
facilitate more capacity building initiatives and development in both the private and
public sectors for a more smooth and successful application of the PPPs concept for
better service delivery at local, national, sub-regional and regional levels. Making
Infrastructure service accessible to all should not only be considered as one target
of SDGs, but also a core responsibility of both national and local governments to
satisfy the legitimate rights of all citizens. In this regard, governments are
increasingly seeking professional expertise through varies forms of PPPs, which are
expected to significantly contribute to achieving national objectives in affordable
ways. However, successful PPPs require that all partners and stakeholders promote
sustainable development through the formulation and implementation of specific
policy measures. The Government of Bangladesh should set the policy and define
the frame work for appropriate options for partnership, in accordance with its
socioeconomic objectives and the interest of all the citizens. The regulators, which
should be independent and trusted institutions, monitor the performance of all
parties, oversee the award and execution of partnership contracts, and balance the
interests of employers, service providers and consumers. Government should
formulate clear legislation and regulatory systems that will give guidance and
confidence to all partners, especially to provide operators working in the sector, to
determine their own polices and plans and to protect their financial interests and
property rights. Qualified local, national and regional enterprises should be given
the opportunity to compete for PPP. Governments should consider involving small
scale providers, which hold a comparative advantage and can play a key role in
157 | P a g e
reaching un-served group of households in both rural and urban areas. In partnering
with private sector operators, government should select appropriate contractual
arrangements that are compatible with their socioeconomic constraints and
objectives and address the specific needs of poor consumers related to cost and also
quality of providing service. For maintaining better environmental protection it is
prime need is to build the capability of the Department of Environment staff in
impact prediction and IEE/EIA review and to establish a strong enforcement
practice: this depends on the strong commitment of both politicians and
bureaucrats. The limitations of this paper includes the using of a pilot survey, this
indicates that this is not a conclusive study but a study that will lead to a broader
study. But the findings of the pilot were significant and interesting, and show good
potential for the broader scale study. Having identified and categorized the barriers
to PPPs project implementation in Bangladesh, it will help the stakeholders
involved in PPPs practice to build in strategies to cope with the barriers with a view
to safeguarding the present and future PPPs implementation. Therefore, the huge
recognition of the barriers and the strategies to eliminate the barriers by the
stakeholders in PPPs will allow the partnership to function effectively and ensuring
successful implementation of PPPs.
PPP contracts should clearly define pro-poor arrangements through establishing
adequate tariff systems and policies for service charges and make them affordable
and equitable for low income residents. There are a number of issues that the author
would have liked to address in this study but it has not been possible due to,
mainly, resources constraints. These are areas where a call for further research in
the future is made. The areas include making a similar study in other countries; up
calling this study in various ways– including covering more LGAs and other public
institutions; making more empirical study, especially on the challenges that parties
in various PPP arrangements in various parts of the world face and their proposed
ways forward. Over time, there will be a need to update this study. The author
welcomes collaborative studies on these and other issues that emanate from this
paper.
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ANNEXURE I
Data Collected from the Infrastructure Project Implemented Under PPP
No-1: Mayor Mohammad Hanif Flyover
No-02: Construction of Dhaka Elevated Expressway
No-03: Establishment of Hemodialysis Centre at National Institute of Kidney
Diseases and Urology
No-04: Appointment of Park Developer for Kaliakoir Hi-Tech Park in
Gazipur through PPP model
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ANNEXURE II
Department of Public Administration University of Dhaka
An Interview schedule
On
Role of Public Private Partnership (PPP) in Infrastructure Development
: Bangladesh Experience
Part A: About the Respondent
1 Name of Respondent
2 Age
3 Education
4 Your Position in the organization
5 Name of your organization
6 Which sector do you have experience with?
7 How many years of experience do you have in construction projects?
8 Which of the following projects do you have experience?
(please specify):
Information about infrastructure Project
1 Name of the Project:
2 Name of Public sector:
3 Name of Private sector:
4 Total Investment: …………………………… (Tk)
5 Investment by Public sector… ……………. (Tk)/ …………..%
6 Which type of PPP MODEL /In this PPP projects, the which Law is used as
the legal framework?
Build-Own-Operate (BOO) Build-Operate-Transfer (BOT)
Build-Own-Operate-Transfer (BOOT) Others
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2. Please rate the negative factors for adopting PPP
arrangement
1 2 3 4 5 N/A
a) Reduce the project accountability
b) High risk relying on private sector
c) Very few schemes have actually reached the
contract stage
d) Lengthy delays because of political debate
e) Higher charge to the direct users
f) Less employment positions
g) High participation costs
h) High project costs
i) A great deal of management time spent in contract
transaction
j) Lack of experience and appropriate skills
k) Confusion over government objectives and
evaluation criteria
l) Lengthy delays in negotiation
m) Others (please specify):
B. Features of PPP projects ( For assessment of Role of PPP)
Pleas rate the following statements based on a Scale from 1-5, where 1
represents the “Least Important”; 5 represents the “Most Important”; and select
“N/A” if you are uncertain in rating a particular statement.
1. Please rate the reasons for adopting PPP
instead of traditional procurement
1 2 3 4 5 N/A
a) Solve the problem of public sector budget
restraint
b) Provide an integrated solution
c) Reduce public money tied up in capital
investment
d) Cap the final service costs
e) Facilitate creative and innovative approaches
f) Reduce the total project cost
g) Save time in delivering the project
h) Transfer risk to the private partner
i) Reduce public sector administration costs
j) Benefit to local economic development
k) Improve maintainability
l) Technology transfer to local enterprise
m) Non-recourse or limited recourse to public
funding
n) Accelerate project development
o) Others (please specify)
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3. Please rate the attractions for private sector
involvement in PPP Projects
1 2 3 4 5 N/A
a) Government sponsorship
b) Government assistance in financing
c) Government guarantee
d) Tax exemption or reduction
e) Incentive of new market penetration
f) Legal support and ensuring security
g) Others (please specify):
4. Please rate the driving forces leading to the
adoption of PPP
1 2 3 4 5 N/A
a) Economic development pressure of demanding
more facilities
b) Political pressure
c) Social pressure of poor public facilities
d) Private incentive
e) Shortage of government funding
f) Inefficiency because of public monopoly and lack
of competition
g) High quality of service required
h) Avoid public investment restriction
i) Lack of business and profit generating skill in the
public sector
j) Others (please specify):
5. Please mention why PPP in infrastructure
Development
1 2 3 4 5 N/A
a)
b)
c)
d)
e)
f)
g)
h)
i)
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6. Please rate the factors that contribute to the
success of PPP projects
1 2 3 4 5 N/A
a) Stable macro-economic condition
b) Favorable legal framework
c) Sound economic policy
d) Available financial market
e) Multi-benefit objectives
f) Appropriate risk allocation and risk sharing
g) Commitment and responsibility of public and
private sectors
h) Strong and good private consortium
i) Good governance
j) Project technical feasibility
k) Shared authority between public and private
sectors
l) Political support
m) Well organized and committed public agency
n) Competitive procurement process
o) Transparency procurement process
p) Government involvement by providing guarantee
q) Thorough and realistic assessment of the cost and
benefits
r) Others (please specify)
7. Which type of project do you feel is best suited to
use PPP?
1 2 3 4 5 N/A
a) Link between performance and payment
b) Economically viable
c) Value for money
d) Mutual benefits for all parties
e) Economic infrastructure
f) High project cost
g) Appropriate risk transfer
h) Scope for innovation
i) Large operating element/cost
j) Each project unique
8. Please mention your comments for practicing guidelines for PPP implementation
Yes No No Comments
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1. Please rate the performance of Public sector on selected KPIs
Sl
no
KIPs N/A
(0)
Fair
(1)
Poor
(2)
Moderate
(3)
Good
(4)
Excellent
(5)
1 Land acquisition for
infrastructure
2 Exemption of taxes
and import duties
3 Linked project
4 Socio-economic
issues
5 legal dispute
6 Fulfillment of
agreement
conditions
(production,
Commercial
Operation Date
(COD)
7 On time activities
(Proposal to
implementation)
8 Project Monitoring
and Quality control
9 Procurement plan or
procurement system
10 Risk Shearing
(Market and
revenue risks,
Operating risks,
Environmental
risks, Political risks,
Public acceptance
risks)
11 Operation and
maintenance
monitoring
12 Financial incentive
for private sector
13 Cost sharing
14 Environmental
relationship and
Part C: (Performance measurement of Public sector under PPP projects)
188 | P a g e
communications
15 Satisfaction level of
private sector
16 Coordination
Part D: (For assessment of cost and service quality in PPP projects )
1. Client satisfaction: Please mention your extent of service satisfaction in
PPP projects
Increased Decreased No comments
2. Please rate the service quality about the following aspects
Sl.
No Statements
Extent of satisfaction
NA 1 2 3 4 5
1 Service of officers
2 Service of staffs
3 Time management for service delivery
4 Cost effectiveness in service
5 Attitude of service delivery officials
towards customers
6 If (Others)
3. To what extent service charges need to be paid for using the infrastructure
under PPP projects?
Increased Decreased No comments
1. Have you ensured the Environmental Impact Assessment (EIA) before
implementing this project?
1=Yes 2=Not 0= Don’t Know
Part E: (For assessment of role of PPP in improving environmental protection)
189 | P a g e
If yes, please mention the findings of the EIA.
a. ___________________________
b. ___________________________
c. ___________________________
d. ___________________________
2. Do these steps being followed before starting this infrastructure project?
Sl. Procedure Not at
all
Partially
followed
Properly
followed
1 Procedures for update and review of
environmental management instruments;
2 Compliance audits;
3 Provision of audits to Defense; and
4 Procedures for notification of Defense and
relevant authorities in the event of
environmental incidents.
3. Please rate the environmental factors adopting the infrastructure project under
PPP arrangement (1= Poor, 2= Fair, 3= Moderate, 4= Good and 5= Very good)
Sl.
No
Statements N/A 1 2 3 4 5
1 Limit and lower air, water, soil and all other forms
of pollution.
2 Provide for the stewardship of ecosystems.
3 Contribute to ecosystem and biodiversity
management and conservation.
4 Enhance ecosystem services provided by green
infrastructure.
5 Promote and use clean and environment-friendly
technologies.
6 Support the conservation and the sustainable and
efficient use of natural resources, including water,
energy and materials
7 Mitigate greenhouse gas emissions during
construction and maintenances
8 Use of resilient technologies to and help protect
against extreme weather events and other natural
disasters such as earthquakes, floods, droughts and
extreme heat etc
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9 Consider climate change risks in its design,
maintenance and operation.
10 Others ( If any)
4. Evaluation of the EIA system in Bangladesh
Evaluative principles Rating Comments
1. Legal/ administrative backing Yes No
Is the system based on clear legal
provisions?
Example: Basis
provided in the ECA
1995 and ECR 1997
Does the EIA system rest on detailed
administrative procedures/guidelines?
Is there a broad and open process of
proposal referral?
2. Preliminary assessment
Does the EIA system require the
analysis of alternatives?
Does the EIA system provide a
mechanism for screening of actions for
environmental significance?
Does the EIA system require that the
scoping of environmental impacts of
actions take place?
3. Detailed assessment
Does the EIA system require that
reports meet prescribed content
requirements?
Are the relevant environmental impacts
of all significant actions assessed?
Do checks on content (by Government
assessing agencies) occur before
publication of the proponent’s EIA
study?
4. EIA study review
Are the EIA studies presented for
public review, and is the proponent
required to respond to issues raised?
5. Decision making
Is the decision-making process of
Government transparent?
Is the decision, and the reasons for it,
published?
Example: The minutes
of the decision meeting
191 | P a g e
is made public through
the DoE website.
Do these reasons include an explanation
of how the EIA report and review
influenced the decision?
Does the EIA system require that
legally binding conditions be set?
Does the law/administrative procedures
allow for a decision to be postponed
until an EIA report has been prepared
and reviewed?
6. Follow-up
Does the EIA system require post-
approval monitoring of action impacts
to be undertaken?
Does the EIA system require that
mitigation of action impacts be
considered at various stages of the EIA
process?
Is there a process for auditing
proponents’ commitments?
Is there a process for monitoring and
auditing the EIA system as a whole?
7. Administrative support
Is the EIA system given adequate
resources?
Do existing staff have the appropriate
skills to operate the EIA system?
Does a well-qualified, private local
consulting sector exist?
Is the ‘across-Government’
environmental administrative system
supportive of EIA?
5. Please mention your opinion regarding environmental protections which have
been maintained in these PPP project. Please clarify how this PPP protect
environment?
a. …………………………………………………………………………..
b. ………………………………………………………………………….
c. ………………………………………………………………………….
192 | P a g e
1. Benefits of PPP model: Please mention the factors for adopting PPP in
infrastructure development instead of traditional project
Sl.
No
Statements Extent of benefits
NA 1 2 3 4 5
1 Solve the problem of public sector budget
restraint
2 Transfer risk to the private sector
3 Benefit of local economic development
4 Cap the finial service cost
5 Technology transfer to local enterprise
6 Favorable legal framework
7 Sound Economic policy
8 Political support
9 Competitive procurement process
10 Strong and good private consortium
*NA= Not at all, 1=Very low, 2=Low, 3= Medium, 4= High and 5=very high
2 Obstacles/ Barriers / Challenges for implementing PPP: Please mention the
obstacles/ barriers/ Challenges of Infrastructure project in Bangladesh perspective
a...........................................................................................................................
b..........................................................................................................................
c..........................................................................................................................
3. Barriers associated with PPP: What is the most common barriers associated with
this PPP projects
Sl.
No
Statements Extent of risks
NA 1 2 3 4 5
1 Social Barriers
2 Legal Barriers
3 Economic Barriers
4 Environmental Barriers
5 Political Barriers
6 Technological Barriers
7 If Others
Part F: (For assessment of PPP Benefits and Barriers)
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4. Please mention the barriers involved implementing Infrastructure PPP project in
Bangladesh
Barriers N/A Fair Poor Moderate High Very
High
Social
public opposition
cultural impediments
societal discontent against the
private sector
public resentment due to tariff
increases,
lack of confidence and mistrust
in PPP among others
Others (if any)
Legal
enacting PPP Law
regulations and other guidelines
to better specify the outputs,
disqualify incompetent
tenderers and ensure transparent
procurement
poor regulatory frameworks and
enforcement
weak institutional capacity and
PPP strategy among others
Others (if any)
Economic
high risk economies by foreign
investors
inability of local institutions to
provide long term financing
difficulty in obtaining foreign
exchange/foreign exchange risk
access to international
commercial finance
fixed rate availability and
overall interest rate payable
foreign currency risk and lack
of hedging instruments
inadequate domestic capital
markets among others
Environmental
land acquisition problems
194 | P a g e
lack of coordination between
national and regional
governments
lack of transparency and
accountability, accusations of
corruption
corrupt tendencies among
others
monitoring and evaluation of
PPP projects
Political
Lengthy delays due to political
debate
political reneging,
politicization of the concessions
lack of strong political
commitment for PPPs among
others
Technological
lack of experience and expertise
in public sector and private
investors
, non-availability of model
concession agreements
inconsistent risk assessment and
management
shortage of professionals to
handle infrastructure PPP
projects
Provision of incomprehensive
up-front project information by
public sector among others.
If Others
Thanks for Your Kind Cooperation
